Taking a DB Pension at 55 with actuarial reduction

bluenose1

Likely to be a redundancy exercise in my work in next couple of months and seriously thinking of taking it.
I have worked out that if I take my deferred civil service pension at 55 I will receive an annual pension of £4,740 and lump sum of £15,100.
If I take it at 60 annual pension £5,880 and lump sum £17,640.
If I take it at 55 I will receive total payments of £71,980 by age 67.
If I take it at 60 I will receive total payments of £58,800 by age 67.
In fact by 75 I will still have received £4,000 more by taking it at 55.
I know this doesn't take account of inflationary increases but is there anything I am missing?
My logic is that I would rather retire at 55 and have the money while I am young enough to enjoy it.
Know too many elderly people who are cash rich in their mid 70s but have little they want to spend it on.

dwsjarcmcd

Not really. Even when inflation (at say 3% p.a) is factored in you would still be better off (using simple interest it would erode the benefit by c£850, so call it £1,200 to allow for compounding at 75). Obviously the 'benefit' reduces each year but as you point out, by then you may not want to spend it!

You would need to factor in a slightly reduced spouse pension if applicable.

Other than that, it looks a good deal to me and your logic for taking it now appears right to me (particularly as I have retired early for exactly the same reason!).

tacpot12

If you have any money in private pensions (DC pensions), it is usually better to draw on the private pensions and delay drawing on the DB pensions until the last possible moment, so as to minimise the effect of the actuarial reduction.

bigfer

i've just done the same with my company DB pension. 16K at 65 or 12K at 57. No matter how i did the maths i was better off till my early 80s if i took my pension now, which i have.
Also i am under the 12.5k tax threshold so no tax to pay and I believe if the fund suffers problems, as an existing pensioner, i am further up the pecking order for bailouts.

Camster

I had a similar situation just over two years ago when I was 58. I took the redundancy package and my DB pension early.

If I recall, it worked out that if I delayed taking the pension, I wouldn't be better off until I was in my late 70's.

I was a bit skeptical at first, but I got it confirmed with my pension provider before I made the final decision.

k6chris

If it works for you, and you can retire on the lower amount, then do it. You will get the inflation increases in both scenarios. The reduction simply means that you are getting a smaller, but over a longer period. If the smaller amount works then happy days. Good luck.

bluenose1

Good to know there is nothing I am missing.
I am reluctant to start using my DC pot until I am sure I won't work again as would be restricted to the £4k pension contributions.
Pretty sure I won't want to, but won't know for sure until a year or two after retirement.
Lovely thought that the end, work wise is in sight, as not sure if it is the menopause but feel really stressed with work. Whereas when I am off feel like a weight has been lifted.

Bravepants

Won't they offer you the opportunity to buy out the actuarial reduction with your redundancy package?


Edit: Unless of course you no longer work in the Civil Service!:)

Brynsam

bigfer wrote: »

Also i am under the 12.5k tax threshold so no tax to pay and I believe if the fund suffers problems, as an existing pensioner, i am further up the pecking order for bailouts.

Only if you've reached the scheme's Normal Retirement Age. If you retire early and are below NRA at the time the scheme fails, you don't get any priority over deferred pensioners.

hugheskevi

Likely to be a redundancy exercise in my work in next couple of months and seriously thinking of taking it.

Presumably you would receive a pile of cash...

If I take it at 60 annual pension £5,880 and lump sum £17,640.

You could buy-out the actuarial reduction to age 55 (or any other age/date you might have in mind - you can take the pension at any age after 50) for about £30,000 (use this calculator for precise values), if you had a pile of cash lying around...this would also count as a pension contribution so you would receive tax relief on the payment.

Then you would also have the lump sum from the pension to replace the redundancy payment.

Not saying it is either possible in your situation or a good thing to do even if it is possible, just raising it as a possibility.

hugheskevi

Brynsam wrote: »

Only if you've reached the scheme's Normal Retirement Age. If you retire early and are below NRA at the time the scheme fails, you don't get any priority over deferred pensioners.

That's correct. Off-thread, but the below may be of general interest...

A couple of decades ago it used to be that as soon as you received your pension you got priority over deferred and active members if the employer became insolvent.

That led to Directors and anyone else who knew a company was in trouble to take their pension early, and get their pension protected at the expense of other members. So that could commonly mean a wealthy Director taking their pension at 50 (minimum pension age back then) and perhaps only losing some future indexation on it, whilst much older low-paid staff a matter of weeks from their normal pension age could lose 60% or even more of their pension to protect the pensions of the Directors and other pensioner members.