LGPS Early Retirement Wannabe

Silvertabby

MakeMoneyWork wrote: »

Thanks for the reply Silvertabby. |Looks like I won't be getting voluntary exit any time soon as my strain costs are £110,000. I managed to get the factors from our scheme (Environment Agency Pension Scheme) actuary.


Years to Funded Retirement Date (FRD) Early Retirement Reduction (ERR)
0 (or past FRD already) 0.00%
1 4.28%
2 8.37%
3 12.29%
4 16.04%
5 19.64%
6 23.07%
7 26.36%
8 29.51%
9 32.53%
10 35.41%
11 38.18%
12 40.82%
13 43.35%
14 45.78%
15 48.10%
Also based on the following Cost Factors (CF)
Cost Factor:
Age next birthday Males Females
51 20.91 21.90
52 20.54 21.56
53 20.17 21.21
54 19.78 20.86
55 19.39 20.49
56 18.99 20.12
57 18.58 19.75
58 18.17 19.36
59 17.74 18.97
60 17.32 18.57
61 16.89 18.17
62 16.46 17.77
63 16.02 17.36
64 15.59 16.94
65 15.16 16.53
The calculation is as follows
Annual Pension x ERR % X CF
Lump Sum x ERR % / 2

The full strain costs would be for redundancy. Lesser strain costs would be applied for flexible retirement (as your employer would only have to fill the gap beween your date of leaving and age 60) and there would be NO strain costs if you just chose to retire and took payment of your fully reduced pension. Am I right in thinking that voluntary retirement isn't an option because you would have to forego your redundancy pay out?

MakeMoneyWork

Yes that's right. My employer ran a scheme last year and anyone with strain costs had to fund them out of their redundancy lump sum and receive what was left as their redundancy pay. My lump sum under last years scheme would have been around £45,000 so well under half of the strain costs. I wouldn't have received an offer if I had applied with those figures.

k6chris

I am trying to get my head around the LGPS early retirement figures as they would affect someone about to leave employment and have a choice of leaving the LGPS pension alone (Frozen) until NRA or taking it early with ERR.



I am assuming (always a dangerous thing) that the Early Retirement Reduction is taken from the 'Total value of LGPS Benefits as at xxxx' figure, where xxxx is the date at which you start the pension? (although I understand annual statements are in a arrears).



I’m also assuming that a drawn LGPS pension will grow by the same percentage each year as one that is ‘frozen’??
A simple (too simple?) calculation of adding up the income from the ‘take it early at a discount’ vs ‘leave it for NRA’ seems to show that the breakeven point is around 81 for my OH (female) and 79 for me. I’m not sure if that is typical?


If the above is correct, then the ERR figures, which initially seem very penal, are actually a reasonable option, especially if you value higher spending early in retirement??


I would welcome general feedback on the merits or otherwise of early LGPS deployment??

Silvertabby

am trying to get my head around the LGPS early retirement figures as they would affect someone about to leave employment and have a choice of leaving the LGPS pension alone (Frozen) until NRA or taking it early with ERR.

Deferred, not frozen.

I am assuming (always a dangerous thing) that the Early Retirement Reduction is taken from the 'Total value of LGPS Benefits as at xxxx' figure, where xxxx is the date at which you start the pension? (although I understand annual statements are in a arrears).

Yes, from the pension you have accrued to your date of leaving. Some people have made the mistake of thinking that if they leave at, say, 60, then their pension would be the age 66 projection less the early retirement reduction.

I’m also assuming that a drawn LGPS pension will grow by the same percentage each year as one that is ‘frozen’??
A simple (too simple?) calculation of adding up the income from the ‘take it early at a discount’ vs ‘leave it for NRA’ seems to show that the breakeven point is around 81 for my OH (female) and 79 for me. I’m not sure if that is typical?

Yes, both deferred and in payment pensions increase each year in line with CPI. Typical break even point is about 12 to 14 years, depending on taxable status in retirement.

How old are you and how much service do you have? Reason I ask is that it may be beneficial to hang on until you are at least 60 in order to maximise your pre 2008 protections.

k6chris

Silvertabby wrote: »

Deferred, not frozen.

How old are you and how much service do you have? Reason I ask is that it may be beneficial to hang on until you are at least 60 in order to maximise your pre 2008 protections.

"Deferred" - noted! I have no pre-2008 protections, 4.5 years service and in the calculations would be taking it at 55 (NRA 67), my OH has about 15 years service and will be 62 with a 66 NRA.

I am not sure we would take it early, but it would certainly appear to be a more viable option than I first thought.

enthusiasticsaver

k6chris wrote: »

I am trying to get my head around the LGPS early retirement figures as they would affect someone about to leave employment and have a choice of leaving the LGPS pension alone (Frozen) until NRA or taking it early with ERR.



I am assuming (always a dangerous thing) that the Early Retirement Reduction is taken from the 'Total value of LGPS Benefits as at xxxx' figure, where xxxx is the date at which you start the pension? (although I understand annual statements are in a arrears).



I’m also assuming that a drawn LGPS pension will grow by the same percentage each year as one that is ‘frozen’??
A simple (too simple?) calculation of adding up the income from the ‘take it early at a discount’ vs ‘leave it for NRA’ seems to show that the breakeven point is around 81 for my OH (female) and 79 for me. I’m not sure if that is typical?


If the above is correct, then the ERR figures, which initially seem very penal, are actually a reasonable option, especially if you value higher spending early in retirement??


I would welcome general feedback on the merits or otherwise of early LGPS deployment??

I am in the same position and have opted to take my pension now. I am almost 58 and my normal pension date would be 2026 so I am taking it 8 years early. The ERR figures are only a guide as it depends on when you joined the LGPS and when most of your benefits were built up.

I have 20 years in the LGPS and the calculations of my benefits were broken down as pre 2008, pre 2014 and the present CARE scheme. I had a transfer into the scheme in 2000 from a previous employer and I worked part time from 1999 to 2004 then full time until 2011 then part time until I retired on 31.12.17. My annual pension is £983 less than it would be if I deferred taking it until 2026. My lump sum is £604 less.

Clearly doing the sums I am better off taking it now as I benefit from the 8 extra years and the index linking and the difference is less than £1k per annum. I would have to live until age 104 to make it worth leaving it until 2026 to take it considering the very small increase by deferring. This is because the retirement age for the pre 2008 benefits was 60 and not my current one of 66. Consequently as most of my benefits were built up before 2008 the ERR is not as bad as I had initially imagined when I saw the chart showing 30% reduction by going 8 years early.

In 2026 my state pension will pay out anyway and increase my income at that point.

I would mention though that working part time the pension is not huge anyway but the actual ERR is 21%. This is far outweighed though by the additional 8 years it will pay out just when I need it most at the beginning of my retirement when I am bridging the gap to SPA.

Silvertabby

k6chris wrote: »

"Deferred" - noted! I have no pre-2008 protections, 4.5 years service and in the calculations would be taking it at 55 (NRA 67), my OH has about 15 years service and will be 62 with a 66 NRA.

I am not sure we would take it early, but it would certainly appear to be a more viable option than I first thought.

In your own case, the early retirement factor would be 40.65% from your pre 2014 service, and 47.6% from your post 2014 service. That's a considerable reduction from just 4.5 years service. I take it that the LGPS isn't your only pension?

MakeMoneyWork

Silvertabby wrote: »

The full strain costs would be for redundancy. Lesser strain costs would be applied for flexible retirement (as your employer would only have to fill the gap beween your date of leaving and age 60) and there would be NO strain costs if you just chose to retire and took payment of your fully reduced pension. Am I right in thinking that voluntary retirement isn't an option because you would have to forego your redundancy pay out?

I have been thinking about this reply a lot.


Partial/flexible retirement would suit me in another 12 months. Partial retirement would mean I have to take all my pre 2008 benefits and lump sum, reduced for early payment. I would also have the option to draw all or some of my 2008-2014 pension and all or some of my post 2014 pension to my partial retirement date, again both reduced,


Assuming I take all of my post 2008 pensions to the date of partial retirement but remain in the scheme then a separate pension pot builds up for payment when I fully retire?


Should I then apply for a voluntary exit scheme in the future, am I correct in assuming it is only the pension that is yet to be drawn that would be used in the strain cost calculations?


If so then strain costs would be minimal.

Silvertabby

Assuming I take all of my post 2008 pensions to the date of partial retirement but remain in the scheme then a separate pension pot builds up for payment when I fully retire?

Yes

Should I then apply for a voluntary exit scheme in the future, am I correct in assuming it is only the pension that is yet to be drawn that would be used in the strain cost calculations?

Yes

If so then strain costs would be minimal.

Not necessarily. Depends on your age and salary. Remember that the R85 protections built up in respect of your first pension record won't be carried forward to your new one.

MakeMoneyWork

Silvertabby wrote: »

Not necessarily. Depends on your age and salary. Remember that the R85 protections built up in respect of your first pension record won't be carried forward to your new one.

Thanks for the reply, I'll need to think about that one. I only have protections on my pre 2008 pension. How would my salary affect my strain costs if this is the formula (Annual Pension x ERR % X CF) for calculating it.


What if after taking partial retirement, I opted out of the LGPS. Would there then be no strain costs as I am not a pension member?