Taking a reduced pension early...

harlequinnyc

I'm mortgage free and want to escape the rat race (who doesn't) and retire early. I have a LGPS pension, deferred from my previous job, which I was in for 22 years, so it's a decent amount. I'm thinking of taking this early, at 55 and my question is; obviously the pension will be 'reduced' but as it would be being paid to me over a greater number of years (fingers crossed!) then am I actually "giving up" any money? May be a simple, silly question but if you don't know, you don't know, you know?

Thrugelmir

Depends when you cease drawing your pension. Beyond a point in time you'll be quids in if you don't draw it early.

JoeCrystal

Let say your default retirement date is 65 with LGPS and you want to retire 10 years earlier (to keep it simple)

£12,000 unreduced pension at 65

Or reduced by 37.7% or a pension of £7,476 per year from 55, you will reach the same amount of money by 80.

Albermarle

obviously the pension will be 'reduced' but as it would be being paid to me over a greater number of years (fingers crossed!) then am I actually "giving up" any money?

In my view you are not giving up any money , just it is spread over a longer period.
It can depend a little on the commutation rate , which is the amount you lose each year you take it early.
4% seems OK but some reduce by 5% per year , not sure about LGPS though, I think I read on other threads that the rate is worse, which would mean taking it early is not such a good deal.

Happier_Me

I'm in the LGPS (19 years deferred, 3 years current) and my plan is to take my pension at 60 because I have 85 rule protection for around 11 years of the deferred scheme. But I've recently calculated the 'payback' if I were to take my LGPS at 55 and it worked out that I would break even at about the 14 year mark, so 69 years old. But this also reduces the amount of guaranteed pension I get, meaning I will need to rely on pension drawdown/ISAs throughout my treatment. I'll track both from now on as there may come a time where the scales tip in favour of accessing the LGPS earlier.

It's worth crunching the numbers for your circumstances, bearing in mind any 85 rule protection, tax payable on a higher pension and obviously your retirement income needs.

Thrugelmir

JoeCrystal wrote: »

Or reduced by 37.7% or a pension of £7,476 per year from 55, you will reach the same amount of money by 80.

Does this factor in inflationary increases ?

tacpot12

Do you have any savings or other pensions that you could use to delay drawing on the LGPS? Even a small pot that only delays it by six months is worthwhile.

Have you found all the old pensions to which you are entitled?

Crabby

Mrs C is leaving at the end of the year at 58. She was going to defer her LGPS pension till 60 (partial 85 year rule kicks in), but after doing the sums she'll be in her mid to late 70's by the time it equalises. So she'll take it straight away, and we can either spend a bit more, or there'll be bit less strain on the drawdown funds.

k6chris

Albermarle wrote: »

It can depend a little on the commutation rate , which is the amount you lose each year you take it early.
4% seems OK but some reduce by 5% per year , not sure about LGPS though, I think I read on other threads that the rate is worse, which would mean taking it early is not such a good deal.

LGPS reductions - not a straight forward calculation. In my case it would be 12 years early - so a 44% reduction for 11 more years.



Years Early - Pension reduction

0 0%

1 5.10%

2 9.90%

3 14.30%

4 18.40%
5 22.20%

6 25.70%

7 29.00%
8 32.10%

9 35.00%

10 37.70%

11 41.60%

12 44.00%

13 46.30%

harlequinnyc

I appreciate your replies. Oops, I hit the wrong key originally, I meant 32 years deferred! So this, plus age 55 would mean the 85 rule applies? I am also currently in the nhs pension but will only have 6 years in this until age 55, on a much lower wage than I used to be on, and part time hours, so I'm guessing that won't be worth much.

I also have some savings, could release equity in my house and will inherit some money. We currently have two cars, one of which can go if I'm not working. I have no dependants, so obviously will reach a point when spending makes more sense than accumulating more. I'm sure this all means that I can comfortably retire early but it's such a big step with no crystal ball.

Thanks again for taking the time to respond.

harlequinnyc

Thank you Tacpot and please excuse my naivety but why is it worth delaying for six months?