Pension Deferment - Is it worth it?

joanie3

I am not currently working, have a rental property and am eligible for my pension that I paid into.
I have received the letters asking what I want to do, take a monthly amount, or have a lump sum, plus a lower monthly amount. 
There is another alternative (which looks interesting) of deferring my pension and getting a bonus. The bonus is paid in the way of an 8% increase in my pension for each year I defer the payment. After 5 years this rises to 40%.
At the moment, thankfully, I am not desperate for this money, so I am inclined to think I will defer drawing my company pension. I can change my mind at any stage and just collect my pension and it will have increased by a proportion of this amount.
Does this sound like a good thing, as where else can I get any interest on any money I have and this way although I am not getting the money, just deferring it, I am looking at the extra I can get when I do claim. I know none of us have that magic crystal ball and don't know how long we will be claiming, so I will lose the amount I have deferred by at the front end, or am I looking at this the wrong way.
Any helpful ideas or easy explaining will be gratefully received.

Linton

This sounds like a very good deal.  The comparable alternative would be to take the pension for a year and invest the money to supplement the pension income in future years.  Would you get an ongoing 8% sustainable return?

Anonymous101

Is it a DB scheme?
A further 8% pa is a very good deal in my opinion and I'd certainly be keen to take that if you're happy to continue working.

joanie3

Hello, thanks for replies,
My thoughts were although I will not have the income from my pension, I will be getting the interest from it when I do decide to take it. 
Anonymous101, I'm not sure what a DB scheme is?
But overall I thought 8% extra was not too bad for doing nothing.  

xylophone

and am eligible for my pension that I paid into.
I have received the letters asking what I want to do, take a monthly amount, or have a lump sum, plus a lower monthly amount. 

This does sound like a Defined Benefit Pension. Have you reached Normal Scheme Retirement Age?

If so, it would seem that what you are being offered is a "late retirement increase". The 8% looks like the late retirement factor.

Do you have a Scheme Booklet?

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

DairyQueen

A word of caution...

Mr DQ has a similar arrangement (late retirement factor of 7.9%). This is the value quoted on all documentation he has received since the year dot, and was confirmed when he decided to defer when he reached scheme NRA last April. He is now approaching the first anniversary of deferment and he has received more documentation advising him that the factor has reduced to 6.9%. What's more it will be applied retrospectively.

It is still a good offer but we have planned our finances around the amount we anticipated receiving after deferring for three years. Mr DQ is incandescent that, after quoting the same factor for many years and deciding to defer on that basis, they have changed the goalposts. 

The issue now is that we do not trust the company. If they can reduce the factor after deferring once then they can do so again. 

Take care. Companies are desperate to reduce their DB pension liabilities and appear willing to employ any possible sleight of hand to achieve that objective.

joanie3

I have just reached 60, but as a woman, can't get my old age pension for a few more years, but my original company rules stated I would retire at 60. I have had regular statements over the years and it increases slightly each year.
I have had quotes 
1 pension at 60 (no lump sum).    2 lower pension at 60 (with lump sum).    3 higher pension at 60 reducing after to 6 years to quite a bit lower.     4 slightly lower high pension at 60 (with lump sum) reducing after 6 years to lower amount.

I was thinking about option 2 but deferring (which I have to do for at least 6 months, but was told on the phone it was 8% pa.
I am hoping they won't change the goal posts and my rough calcs mean I would break even (if I did this for 5 years) on reaching 80 (assuming I reach this age.

As for state pension forecast, unless I work for a further X no of years, I will not get the full state pension (despite having over 30 years NI contributions, it is the recent / future ones I need).

xylophone

As for state pension forecast, unless I work for a further X no of years, I will not get the full state pension (despite having over 30 years NI contributions, it is the recent / future ones I need).

See https://www.royallondon.com/siteassets/site-docs/media-centre/good-with-your-money-guides/gwymg-8-new-state-pension-april-2019-edition-interactive.pdf
The above explains about "voluntary contributions" - certainly worth your while considering these.

Your old pension was Defined Benefits. Do you not have a copy of the Scheme Booklet? If not, you may find one on the internet.

It offers the common arrangement at Scheme NRA of lump sum/pension - it also appears to offer a "bridging pension" - see  https://uk.practicallaw.thomsonreuters.com/9-376-0210?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1 This should be explained in the scheme booklet.
It also offers "late retirement increases" - not all schemes do and not all schemes offer a bridging pension.

[Deleted User]

DairyQueen said:

A word of caution...

Mr DQ has a similar arrangement (late retirement factor of 7.9%). This is the value quoted on all documentation he has received since the year dot, and was confirmed when he decided to defer when he reached scheme NRA last April. He is now approaching the first anniversary of deferment and he has received more documentation advising him that the factor has reduced to 6.9%. What's more it will be applied retrospectively.

It is still a good offer but we have planned our finances around the amount we anticipated receiving after deferring for three years. Mr DQ is incandescent that, after quoting the same factor for many years and deciding to defer on that basis, they have changed the goalposts. 

The issue now is that we do not trust the company. If they can reduce the factor after deferring once then they can do so again. 

Take care. Companies are desperate to reduce their DB pension liabilities and appear willing to employ any possible sleight of hand to achieve that objective.

Wow. Your decision making will have been impacted by the late retirement factor. Surely you have a strong case against them if you were to complain. 

DairyQueen

Deleted_User said:

DairyQueen said:

A word of caution...

Mr DQ has a similar arrangement (late retirement factor of 7.9%). This is the value quoted on all documentation he has received since the year dot, and was confirmed when he decided to defer when he reached scheme NRA last April. He is now approaching the first anniversary of deferment and he has received more documentation advising him that the factor has reduced to 6.9%. What's more it will be applied retrospectively.

It is still a good offer but we have planned our finances around the amount we anticipated receiving after deferring for three years. Mr DQ is incandescent that, after quoting the same factor for many years and deciding to defer on that basis, they have changed the goalposts. 

The issue now is that we do not trust the company. If they can reduce the factor after deferring once then they can do so again. 

Take care. Companies are desperate to reduce their DB pension liabilities and appear willing to employ any possible sleight of hand to achieve that objective.

Wow. Your decision making will have been impacted by the late retirement factor. Surely you have a strong case against them if you were to complain. 

Yes, I think that changing the factor retrospectively is worth a complaint to the ombudsman if the administrators don't respond positively to Mr DQ's call. Not sure if we have a case for complaint about future changes in the late retirement factor despite them giving only two months notice of a reduction for the next year.

In the five years prior to reaching NRA, the scheme reduced the projected pension twice. Now, with a reduced late retirement factor, the pension at age 65 has reduced by 15% compared to the value quoted in 2014. 

Thought I would mention as I doubt this is the only private sector DB scheme that is pulling the rug at the 11th hour. We are able to absorb this 15% reduction but it could blow retirement for a significant number of people.