Civil Service Pension - leaving early

Tom99

BobQ wrote: »

So if you have not reached the maximum state pension, by paying £15 a week in 2019/20 you gain about £5 a week in every year of your retirement (plus any increases for inflation). This means provided you live for 3 years you have got your money back. (Tom do you agree?)

[FONT=Verdana, sans-serif]Yes if you are not earning in 2019/20 you can pay voluntary Class 3 NI at, I think, £15pw/£780pa.[/FONT]
[FONT=Verdana, sans-serif]That gets you 1/35th of the full state pension at retirement age, which in 2019/20 is £168.60pw.[/FONT]
[FONT=Verdana, sans-serif] £168.60/35=£4.82pw=£250.50pa[/FONT]
[FONT=Verdana, sans-serif]So the payback based on 2019/20 figures would be £780/£250.50=3.1yrs payback.[/FONT]
[FONT=Verdana, sans-serif]Or after tax at 20% £780/(£250.50*0.8)=3.9yrs payback period.[/FONT]
[FONT=Verdana, sans-serif]A bargain.[/FONT]

Jennie5

With all your advice I think I’m getting there!
I have used the CSP Retirement Modeller to work out my pension if I retire aged 59 yrs 2 mths, and it does take into account the actuarial reduction which is helpful. However, if I still retire at that age and leave my pension until I’m 60, obviously I won’t get the full amount as is estimated in my annual statement but is there a rough % I should take off which will give me a best estimate? I’m just trying to determine whether it is worth waiting until I’m 60. I know I will get all this information in the exit package but I won’t get that until March so I would like to know where I stand before then if possible. Thanks.

Audaxer

Jennie5 wrote: »

With all your advice I think I’m getting there!
I have used the CSP Retirement Modeller to work out my pension if I retire aged 59 yrs 2 mths, and it does take into account the actuarial reduction which is helpful. However, if I still retire at that age and leave my pension until I’m 60, obviously I won’t get the full amount as is estimated in my annual statement but is there a rough % I should take off which will give me a best estimate? I’m just trying to determine whether it is worth waiting until I’m 60. I know I will get all this information in the exit package but I won’t get that until March so I would like to know where I stand before then if possible. Thanks.

The CS Classic Scheme booklet explains how it's calculated under the section headed 'Working Out Your Pension':
https://www.civilservicepensionscheme.org.uk/media/181375/crb-1-april2016.pdf
If you will have worked for example 32 years at age 60, but left at 59 years and 2 months the figure in your calculation for years worked would be 31.67 years. That figure would be divided by 80 and then multiplied by your 'Final Pensionable Earnings' to calculate what pension you are due. As I think you said you worked part-time for a few years, you would have to adjust the figure to take that into account. The booklet says:
"Part-time service counts on the basis of the actual hours you work and the equivalent full-time pensionable earnings."
I think if you have the correct figures you should be able to work out the amount your pension will be if you leave 10 months early but don't take the pension until you are 60.

If you are due to get a lump sum with your pension, the booklet says you can exchange that for additional pension, so that may be worth looking into.

Tom99

Jennie5 wrote: »

With all your advice I think I’m getting there!
I have used the CSP Retirement Modeller to work out my pension if I retire aged 59 yrs 2 mths, and it does take into account the actuarial reduction which is helpful. However, if I still retire at that age and leave my pension until I’m 60, obviously I won’t get the full amount as is estimated in my annual statement but is there a rough % I should take off which will give me a best estimate? I’m just trying to determine whether it is worth waiting until I’m 60. I know I will get all this information in the exit package but I won’t get that until March so I would like to know where I stand before then if possible. Thanks.

[FONT=Verdana, sans-serif]Remember to take tax into account when comparing the options. If you take your pension from May 2019 it will be taxable but if you defer taking it until Mar 2020 it is possible you will get a full refund on the tax you will have paid on your April and May salary.[/FONT]

[FONT=Verdana, sans-serif]Have you looked at how making an 'Added Pension' contribution this tax year 2018/19 would compare with the cost of buying out the reduction, which you thought was to high. Subject to the amount of taxable salary you will have in 2018/19, you will get tax relief on the 'Added Pension' paid this tax year which may make it cheaper than the 'buying out the discount' option.[/FONT]

Jennie5

A quick question I promise! Is the actuarial reduction for taking the pension early based on the projected pension at age 60, I think it is but would just wanted to check.

Tom99

Jennie5 wrote: »

A quick question I promise! Is the actuarial reduction for taking the pension early based on the projected pension at age 60, I think it is but would just wanted to check.

No its based on the pension you have earned up to the date you retire.
For example, say to May 2019 you will have earned a pension of £10,000pa and by Mar 2020 it would have been £10,200pa then the %age reduction say 3% is applied to the lower figure eg £10,000 x 97% = £9,700.
You would get £9,700pa from June 2019.

Audaxer

Tom99 wrote: »

No its based on the pension you have earned up to the date you retire.
For example, say to May 2019 you will have earned a pension of £10,000pa and by Mar 2020 it would have been £10,200pa then the %age reduction say 3% is applied to the lower figure eg £10,000 x 97% = £9,700.
You would get £9,700pa from June 2019.

Jennie5, these example figures show the 3 options available, and I think if you want to leave 10 months early, the best option would seem to be wait the 10 months until you are 60 before taking the pension if you can, as the annual reduction will be a lot less than if you take the pension 10 months early.

BobQ

The actuarial reduction will reduce the pension but you will draw the pension for 10 month longer than otherwise. But the Pension will be increased by CPI over that period so the actual loss may be less than you imagine.

Jennie5

BobQ wrote: »

The actuarial reduction will reduce the pension but you will draw the pension for 10 month longer than otherwise. But the Pension will be increased by CPI over that period so the actual loss may be less than you imagine.

Totally agree Bob, there are swings and roundabouts with all the options. Not taking my pension until I’m 60 sounds sensible if you can afford it, but I would then have to live off my redundancy money for 10 mths and have estimated it would take me approx 10 yrs to recoup what I have spent in 10 mths!

Audaxer

Jennie5 wrote: »

Totally agree Bob, there are swings and roundabouts with all the options. Not taking my pension until I’m 60 sounds sensible if you can afford it, but I would then have to live off my redundancy money for 10 mths and have estimated it would take me approx 10 yrs to recoup what I have spent in 10 mths!

Hopefully you will have a long retirement of 30 years or more. So another way to look at it is that you will continue to be in profit year on year after 10 years. However if you already have other plans for the redundancy money, then it is understandable if want to take the pension 10 months early.

Are you taking the tax free lump sum that I understand comes with the CS Classic pension, or do you plan to exchange the lump sum for an increased pension?