# How to calculate TFLS when taking DB pension early

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# How to calculate TFLS when taking DB pension early

12 replies 281 views
483 posts
Forumite
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Hi,
I have a DB pension that comprises a annual payment, lump sum and associates AVCs
I am trying to work out the Pension Value as far as TFLS is concerned if taking before the NRA for the scheme..
Obviously the AVC and Lump sum are fairly easy as their values are clearly defined.
Regarding the DB value - the value is 20 times the annual pension payment.
My question is what annual payment amount is used?  Is it the value at Normal Retirement Age for the scheme as detailed on my pension statement (in my case at 60), or if I am planning to take it earlier with actuarial reductions - is it this "reduced" annual payment value I use?
Obviously the latter will be significantly lower - hence the 25% TFLS I can take will be lower as well.
I dont see why the TFLS should suffer due to me taking early as the Pension Value in reality remains unchanged - just taking it in a different way (less for longer) - but that might just be the way it is.  Not sure.
Thanks
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## Replies

• 12K posts
Forumite
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You seem confused.  25% only applies to DC pensions.  For DB pensions the scheme rules apply - the Lump Sum is the equivalent of the TFLS.  The value of the pension is not 20X the annual payment.  That is purely a number used to account for DB pensions within the pension lifetime allowance rules.

• 483 posts
Forumite
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Linton said:
You seem confused.  25% only applies to DC pensions.  For DB pensions the scheme rules apply - the Lump Sum is the equivalent of the TFLS.  The value of the pension is not 20X the annual payment.  That is purely a number used to account for DB pensions within the pension lifetime allowance rules.

OK - maybe I have explained this badly.
My work pension has both DB and DC elements (AVCs).  I am trying to understand how much of my AVC I can take tax free.  This is calculated as 25% of the WHOLE pension value inc the DB part.  I am trying to understand the basis on which to calculate the DB value as this will form part of the total value on which I can take 25% TFLS.
Does that make sense?
• 2.6K posts
Forumite
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I am trying to understand how much of my AVC I can take tax free.
25% of the AVC value unless the scheme allow the PCLS from the DB side to be taken from the AVC (most don't but some do).

• 483 posts
Forumite
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SonOf said:
I am trying to understand how much of my AVC I can take tax free.
25% of the AVC value unless the scheme allow the PCLS from the DB side to be taken from the AVC (most don't but some do).

I believe our pension allows AVC to be part of the PCLS (BT Pension Scheme).
This was always the big headline for the AVCs in this scheme.  So much so that they continued to make special arrangements to allow contribution to this AVC for a short time after the Pension scheme closed (and introduced a separate DC scheme).
• edited 14 February at 10:54AM
4.9K posts
Forumite
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edited 14 February at 10:54AM
OK - maybe I have explained this badly.
My work pension has both DB and DC elements (AVCs).  I am trying to understand how much of my AVC I can take tax free.  This is calculated as 25% of the WHOLE pension value inc the DB part.  I am trying to understand the basis on which to calculate the DB value as this will form part of the total value on which I can take 25% TFLS.
Does that make sense?

It will depend on the formula used for your DB scheme and can be found in your scheme's pension handbook. As an example mine is:

Annual Pension x PCLS Conversion Factor x 20
--------------------------------------------------------------- (divided by)
((3 x PCLS Conversion Factor) + 20)
Personal Responsibility - Sad but True

Sometimes.... I am like a dog with a bone
• edited 14 February at 10:59AM
483 posts
Forumite
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edited 14 February at 10:59AM
cloud_dog said:
OK - maybe I have explained this badly.
My work pension has both DB and DC elements (AVCs).  I am trying to understand how much of my AVC I can take tax free.  This is calculated as 25% of the WHOLE pension value inc the DB part.  I am trying to understand the basis on which to calculate the DB value as this will form part of the total value on which I can take 25% TFLS.
Does that make sense?

It will depend on the formula used for your DB scheme and can be found in your scheme's pension handbook. As an example mine is:

Annual Pension x PCLS Conversion Factor x 20
--------------------------------------------------------------- (divided by)
((3 x PCLS Conversion Factor) + 20)
I will look at the pension documentation for this.
But you mention in your calculation "annual pension". This what my question was about.  In your scheme is this the "annual pension" at the scheme retirement age or at the time you take it (less through actuarial reductions)?

Out of interest - do you know the PCLS Conversion Factor for your scheme?  I have never seen this mentioned in out scheme so can only assume it is "1" - i.e. isn't included.
• edited 14 February at 11:20AM
4.9K posts
Forumite
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edited 14 February at 11:20AM
The "annual pension" will be the annual pension when you draw the pension (I know this is obvious but...), I would assume that if you take the pension 'n' years earlier than the normal retirement age then you need to apply any early retirement reduction factors first before you calculate the PCLS.

I do have data.  (still getting used to the new editor so the presentation below may be a little squishy).

..Age at date.........PCLS Conversion...................................Age at date.........PCLS Conversion
of Retirement.................Factor..........................................of Retirement................Factor.........
.........55.........................16.23.....................................................61........................14.04
.........56.........................15.88.....................................................62........................13.66
.........57.........................15.53.....................................................63........................13.28
.........58.........................15.16.....................................................64........................12.89
.........59.........................14.79.....................................................65........................12.50
.........60.........................14.42

It is important to understand that these figures are only appropriate for my scheme, and at the point in time they were published (they can and do change).

EDIT:  Contact your scheme's administrators and request the scheme's employee's pension handbook.

Personal Responsibility - Sad but True

Sometimes.... I am like a dog with a bone
• 4.9K posts
Forumite
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I'm not going to type all the early retirement factors in but, for my scheme, if I take my pension 5 years early it is reduced by 77.4%
Personal Responsibility - Sad but True

Sometimes.... I am like a dog with a bone
• 483 posts
Forumite
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Thanks cloud dog for this.
I understand my actuarial reductions for taking my pension early (approximately 3% per year - so pretty good).
I get that it might be "obvious" that I would use the "reduced" annual pension in the calculations.
As far as I can tell from the documentation I have read so far - my calculation for the Pension "pot" value as regards the TFLS is -
20 x Annual Pension + Lump Sum + AVC.  And that the Lump Sum and AVCs can be taken as part of the 25% TFLS (and anything above this is taxable in the normal way).  So there doenst seem to be other conversion factors.
My query was about what to use for the "Annual Pension" to use in this calculation.  And you are suggesting the Actuarially reduced figure.
Looks like more research and learning needed for me.
• 2.2K posts
Forumite
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cloud_dog said:
I'm not going to type all the early retirement factors in but, for my scheme, if I take my pension 5 years early it is reduced by 77.4%
Are you sure that is right?! That sound very steep actuarial reduction!