Private Pension Forecast

Uncle_Vic

Hi,

Grateful if someone could give some guidance on a pension forecast.

My wife has worked for the same employer for over 30 years. Her pension changed from a defined benefit scheme to a defined contribution scheme about 5 years ago. Her pension age is 60 although we would prefer to take the pension at 55, which she is entitled to do. We know what her DB pension pot is (around £235k). Her DC pension pot is quite small.

My question is, is there a relatively standard formula for working out approximately what her DB pension would be if she retired at 55, or are the calculations very company dependent?

Her pension admin people wont give out any projection until she is 54 which isn't overly helpful, although perhaps there is a valid reason for this.

Grateful for any advice.

kidmugsy

Her DB pension doesn't have a pot. It does have a promised annual pension at (presumably) 60. If she takes it earlier it will suffer an actuarial reduction to compensate for her drawing it for longer than she would have if she had started it at 60.

So you should ask the pension scheme what their actuarial reduction is. Commonly it might be 4% or 5% for each year early.

Uncle_Vic

Thank you kidmugsy.

Now you mention it that makes perfect sense.

When we contacted her pension team recently they said that the value of her DB benefits was £235k and the value of her DC benefits was £6k. In my ignorance i thought this was her "pot". Any Ideas what these values mean?
Thanks.

Dox

Uncle_Vic wrote: »

Thank you kidmugsy.

Now you mention it that makes perfect sense.

When we contacted her pension team recently they said that the value of her DB benefits was £235k and the value of her DC benefits was £6k. In my ignorance i thought this was her "pot". Any Ideas what these values mean?
Thanks.

The £235K refers to the amount available to transfer out (known as a Cash Equivalent Transfer Value or CETV). This fluctuates regularly, based on market conditions. The £6K in her DC pension really does represent 'what's in the pot' at the time they quoted.

PeacefulWaters

While taking the DB scheme early may appeal, assuming normal life expectancy waiting until scheme retirement age is usually a better option.

Earlier retirement could be achieved by taking the DC scheme into drawdown, but this depends on the values involved and also what income is wanted / needed.

It might be a case of retire at 60, spend the DC pot upto receiving state pension, live off DB and state pension income after the DC pot runs out.

Uncle_Vic

Thank you all for your replies. Very helpful. I will look again at the various numbers quoted in my wife's pension statements to see if we can make more sense of them. However, at first look they do seem hideously complicated! Once we obtain the reduction rate (which I assume the company should readily provide) then hopefully things will be a little clearer. We also need more information on the DC pension.

On a personal note, I am already retired. I had the good fortune to be able to retire with a respectable (not large) pension at 55. My wife wants to join me in retirement asap lol.