Actuarial cutback

kaiserdave

I currently have two differed pensions which I stopped paying into over 7 years ago
I am approaching my 55th birthday and have contacted them both to see what the number would be should I decide to cash them in on my 55th birthday

imagine my horror when I now have been told by both that I cannot take my pension without any penalty until the age of 65 and despite one scheme tupe over from the first its 3% per year on one and 4% on the other
my understanding was when I became a differed pensioner everything was frozen my question is can they actually do that or should I be under the terms and conditions that existed when I left the scheme i.e. able to draw pension without penalty from age 58?
thanks in advance
Dave

fizio

Not much detail but its pretty normal for someone who is 'deferred status' with a DB scheme to face ERDF (early retirement discount factors) of 3-6% for every year they take the pension early versus their NRA (normal retirement age).
Sounds like your 2 schemes have ERDF of 3 & 4% and these are calculated backwords from 65 to arrive at a pension value for any age 55 onwards
I suspect that the scheme had a policy to allow early retirement with no penalties but this would have been for 'active' employees whereas once you left the scheme you became deferred so that option closed. No idea if TUPE would make a difference but likley its a case of exactly what as negotiated on the pension side when you tupe'd over. My understanding is the pensions are not a mandatory part of tupe and its a mutal agreement thats agreed.

ermine

kaiserdave wrote: »

imagine my horror when I now have been told by both that I cannot take my pension without any penalty until the age of 65

Why are you horrified? A DB pension is paid for the rest of your life. Pretty obviously if you draw it 10 years earlier than the scheme's normal retirement age of 65 then you'll be getting paid for 10 extra years. Money doesn't grow on trees like that, so you'll get less per year to compensate.

A DB pension is typically predicated on the beneficiary living on average 20 years after pensionable age. Stands to reason, therefore, that for every year drawn early it goes down by about 5% every year to make the cost to the paying scheme about the same. The actuarial reduction is typically about 5% per year drawn early, though the true actuarial reduction is more for the early years close to 55 and less for the years closer to 65.

bluenose1

I didn't realise if you were a deferred member you may lose the rights of those still in the scheme.
Though 58 without penalty seems an unusual scheme. Think mine was only if you retired due to ill health or were made redundant.
Are you sure that 58 was the retirement age.

grnglide

Is it not that the scheme allowed you retire at 58 if you were a contributing member at the time? However once you became a deferred member you lost this right.


So this would not be a change to the scheme. My DB scheme allowed me to take the pension at 60 without reduction if I was a contributing member and was leaving with the employer's agreement, otherwise it was 65.

Marcon

kaiserdave wrote: »

my understanding was when I became a differed pensioner everything was frozen my question is can they actually do that or should I be under the terms and conditions that existed when I left the scheme i.e. able to draw pension without penalty from age 58?
thanks in advance
Dave

I'm afraid your understanding was wrong - pensions aren't 'frozen' but revalue (increase) between the time someone leaves a scheme and the time the pension comes into payment - which is good news! The less good news is that if you misunderstood that point, it's entirely possible that you have also misunderstood that you could definitely draw your pension at age 58 with no reduction for early payment.

The only way to be sure is to ask the scheme(s) to confirm in writing what the position was at the time you left the scheme, and what it is now in terms of early retirement. There would be a substantial cost to the employer sponsoring the scheme, so it would be most unusual for active members, let alone deferred members, to be able to take their pensions years before a scheme's normal retirement date.