Retiring at 55 & Occupation Pensions

silentotter

Hi

I know a lot occupational pensions will allow you to retire at 55 and take a pension. However should you decide to do so would you lose some of your pension income?

Would be grateful for any advice.

p00hsticks

The typical figure often mentioned is a reduction of 5% in the pension amount for each year earlier than the normal retirement age for the scheme.

So taking a pension at 55 when the scheme retirement age is 65 would result in getting half the amount you would have if you waited until 65.

But the normal retirement age and the reduction will depend on the individual scheme.

Brynsam

silentotter wrote: »

Hi

I know a lot occupational pensions will allow you to retire at 55 and take a pension. However should you decide to do so would you lose some of your pension income?

"Lose' isn't quite the right description, although it is often used. If you take your pension before a scheme's normal retirement age (NRA), your pension will be paid sooner than expected and for a longer period. The starting level is normally reduced (often by around 4% per annum, although higher and lower figures are both common) to reflect this. The idea is that by the time you die, you will have received the same amount of pension overall as you would have received if you'd retired at the scheme's NRA. The one thing you can guarantee is that it won't be - but whether it is more, or less, depends on how long you live.

The answer above refers to 'getting half the pension you would have got' - but if you take it 10 years early, you will have had 10 extra years of pension payments, so it isn't as draconian as that makes it sound.

tigerspill

silentotter wrote: »

Hi

I know a lot occupational pensions will allow you to retire at 55 and take a pension. However should you decide to do so would you lose some of your pension income?

Would be grateful for any advice.

You dont lose any pension. But it is distributed in a different way. You will get less each year but for more years.
Typically this actuarial reduction can be around 5% per year yearly.

Some schemes offer better terms when they are trying to get rid of people for example by way of "encouragement".

marlot

silentotter wrote: »

Hi

I know a lot occupational pensions will allow you to retire at 55 and take a pension. However should you decide to do so would you lose some of your pension income?

Would be grateful for any advice.

Yes you'll get a reduction - but it will be in payment for longer.


I shall be retiring at 55. I have four DB schemes, with a range of reductions from 32% to 45%.


I note that with some, the spouses pension (paid after my death) is also reduced. With others, the spouses pension is paid at the unreduced amount.

silentotter

Thanks folks that's brilliant advice. If I wanted to boost the retirement income which would you advice is best to do AVCs or stakeholder pension?

jerrysimon

I retired last year at 56 with a DB pension payable at 60. It was reduced from about 20.5K - 17.5K. I worked out it would take me eight years to earn back the extra money drawn in 4 years had I left it to aged 60.


Interestingly the pension increase with inflation this year was greater than what I would have got had I remained working so its now nearer 18K. As I always say here although I earned more than twice this whilst working my monthly income now is nearer 2/3rd what I earnt when working, as I pay no Pension/NI and much less tax :T


On my death my wife would receive half the original pension had I left at 60 so she would get 10K not 50% of the 17.5K

cobson

Does anyone happen to know what the spouse's benefit rules are with the teacher's pension scheme when a member retires early ?

Audaxer

silentotter wrote: »

Thanks folks that's brilliant advice. If I wanted to boost the retirement income which would you advice is best to do AVCs or stakeholder pension?

I would say if you want to boost retirement income, it would be best to leave the pension until your Normal Retirement Age rather than take it at 55.

zagfles

tigerspill wrote: »

You dont lose any pension. But it is distributed in a different way. You will get less each year but for more years.
Typically this actuarial reduction can be around 5% per year yearly.

Some schemes offer better terms when they are trying to get rid of people for example by way of "encouragement".

You do usually lose, because the reduction factors are rarely actuarially neutral. An actuarially neutral rate would be approximately the rate of an index linked annuity - typically under 3%. It's like commutation rates, these are rarely anywhere near actuarially neutral.

So if you're in a scheme with a 5% early retirement factor you are likely to lose if you take the pension early. Unless of course you have short life expectancy - but then a better option would likely to be to transfer out.

Of course there are other issues like tax, and the lifetime allowance, which could swing the equation.

zagfles

jerrysimon wrote: »

I retired last year at 56 with a DB pension payable at 60. It was reduced from about 20.5K - 17.5K. I worked out it would take me eight years to earn back the extra money drawn in 4 years had I left it to aged 60.

Interestingly the pension increase with inflation this year was greater than what I would have got had I remained working so its now nearer 18K.

That's unusual - generally revaluation in deferment is better than indexation in payment. But depends on exact circumstances.