Actuarial Reduction calculations

tigerspill

Hi,
I have a question regarding how to calculate multi year actuarial reductions.  I am not sure if there is a general way or whether this is scheme specific.  This relates to the Teachers' Pension Scheme - Final Salary part only - ignoring newer CARE element..
If for example the Pension at NRA is £10,000, and the yearly actuarial reduction is 5%.  To me there are two potential ways this can be calculated for say taking the pension 5 years early
Option 1 - simply take five years at the 5% to get 25% - reducing the £10,000 to £7,500.
Option 2 - reduce year by year.  
Year 1 - reduce £10,000 by 5% giving £9,500;
Year 2 - reduce £9500 by 5% giving £9025
Year 3 - reduce £9025 to £8573
Year 4 - reduce £8573 to £8145
Year 5 - reduce £8145 to £7738.

This obviously this makes a difference - in this case £238.
The reason I ask is the TPS web site calculator when calculating reduced pension for early payment is significantly higher than I am calculating based on option 1 (documented as 5% per year).  Option 2 doesn't work out either and is still significantly lower than the TPS web site is calculating. The only thing I could think about was that maybe they use option 2 above.
Would anyone in the TPS have the actual year by year %age reductions rather than the generic 5% / year.
Thanks

NoMore

https://www.teacherspensions.co.uk/-/media/documents/member/documents/factors/retirement/tps-early-retirement-factor-guidance-10-february-2015.ashx?rev=34f525eb946d4c5e955d2a51a518b0f9&hash=FF4CACFEB4470F43E854EED65F9BDD7B

This help ? 

tigerspill

NoMore said:

https://www.teacherspensions.co.uk/-/media/documents/member/documents/factors/retirement/tps-early-retirement-factor-guidance-10-february-2015.ashx?rev=34f525eb946d4c5e955d2a51a518b0f9&hash=FF4CACFEB4470F43E854EED65F9BDD7B

This help ? 

Thank you for the fast response.  I will take a read and see how I get on.

JCUK

Over in the TES forum (in the Retirement section) there's a poster called Diddydave who has created a spreadsheet that calculates precisely what the actuarial reductions are on both FS and CARE elements, which also shows at what point you break even by taking it early.  Sorry I can't find the link right now, but if you look around there you'll find it, and it's really helpful.

cobson

NoMore said:

https://www.teacherspensions.co.uk/-/media/documents/member/documents/factors/retirement/tps-early-retirement-factor-guidance-10-february-2015.ashx?rev=34f525eb946d4c5e955d2a51a518b0f9&hash=FF4CACFEB4470F43E854EED65F9BDD7B

This help ? 

That version is a little out of date, here is the new one:
https://www.teacherspensions.co.uk/members/search/-/media/793a7407bd0a4cb1bc5f00dbb35987db.ashx

If you are taking a NRA60 pension at 55 years you get 81.1% of the full pension (table ER1).

Dazed_and_C0nfused

Which is actually less than 4%/year compared to the much quoted 5%

tigerspill

Thanks folks.  This is perfect.  
I have one wrinkle that I need to check.  That these are the same for the NI TPS.  I assume it is but need to be 100% sure.
Does anyone here know if the Northern Ireland version is the same?  Seems the same in all other respects I have looked at so no reason to think this aspect would be different.  

Thrugelmir

Dazed_and_C0nfused said:

Which is actually less than 4%/year compared to the much quoted 5%

The related inflation linking is lost as well. 

tigerspill

Thrugelmir said:

Dazed_and_C0nfused said:

Which is actually less than 4%/year compared to the much quoted 5%

The related inflation linking is lost as well. 

Hi,  Not sure what this means?

zagubov

Their websites are here  whether you're in E+W, Scotland or NI.
I seem to recall they don't necessarily sing to the same tune about retiring early if you're on FS plus CARE pensions. For example, maybe in NI you can collect the FS and the lump sum early while collecting the CARE portion later (see this) . A poster ( foofi22)started a thread on the NI system.
I'd definitely ask work colleagues, union reps, recently-retired colleagues and rehearse the questions you'll need to ask when you contact the pension service, as they can't offer advice or do lightning calculations about predictions.
Are you thinking about retiring all in one go or phasing it gradually? There's good reasons for going for the latter.

Thrugelmir

tigerspill said:

Thrugelmir said:

Dazed_and_C0nfused said:

Which is actually less than 4%/year compared to the much quoted 5%

The related inflation linking is lost as well. 

Hi,  Not sure what this means?

Base pension will increase and compound by inflation over the years. Over 25 years the difference will be considerable.