Drawing frozen pension

jetplane

I have a small civil service pension around £4000 per annum with a small lump sum, frozen 30 years ago due to be paid when I’m sixty. If I claim it now 2 years early I lose 10%. Can anyone tell me what the disadvantages are of claiming it now as opposed to leaving it. I don’t need it but my basic maths has me thinking if I offset what I receive over the next 2 years it will be many more years before I lose overall. But I’m sure pensions are more than just basic maths. 🤔

It will be taxed as I work full time and have a local authority pension with over 30 years service by the time it’s due to be paid in full when I’m 67. 

Albermarle

Losing 5% for each year you take it early is normal , overall you should not gain or lose out much either way .

Marcon

You don't 'lose' 10%. The starting level of your pension is reduced to reflect the fact it is being paid sooner than expected and will be payable for longer than if you wait until the scheme's normal retirement age. It isn't frozen, so will continue to increase in value between now and the time you draw it.

Mickey666

Albermarle said:

Losing 5% for each year you take it early is normal , overall you should not gain or lose out much either way .

On average, yes, which is how the pension actuaries calculate such things.
But individuals are not average and there may be circumstances specific to the OP that might make changing their pension date a sensible decision.  An obvious area to consider is health.  If the OP is in poor health then perhaps taking this pension early would be a good decision.  We just don't have enough information to know.  

jetplane

Thank you, I will look at how much it has risen over the last year as I need to factor in that in 2 years it will have increased, I'm sure there is a projected figure in the paperwork.  I am in relative good health now but would really like to step down in the next year or two which is an option with my LA pension.

squirrelpie

I'm glad you wrote your last post, because I was going to suggest you considered early retirement. If you're still working and don't need the money I wouldn't take it yet. Instead I'd suggest you look at when you do feel able to retire and start taking it then, to help bridge the gap until your state pension starts.

Or you could take it now and save the cash, again to use to help bridge the gap. It depends on what options you have for lumps sums, and what other savings you may have.

german_keeper

Assuming it's Classic pension, as that was the only one available 30 years ago, current Actuarial Reduction factor for exactly 2 years is 0.91 so it would only be reduced by 9.1%. Also lump sum AR factors are better, currently 0.955 so the lump sum would be reduced by 4.45%. If it was say 2 years and 1 month or 1 year 11 months those factors would be slightly different. AR factors are easily found on the Civil Service Pensions website. A quick google should easily find the information. 

jetplane

Thank you, it is classic and I was thinking of adding it to savings to bridge the gap, I don’t want to fully retire yet. It sounds like it really is down to number crunching with the only disadvantage that I will be slightly worse off in around 15 years time if I take it now.
Oh and I need to look a bit closer at the lump sum.

OldBeanz

If you are in the LGPS then one would hope that you have considered investing in an AVC as there is the ability to increase your lump sum efficiently.

jetplane

I haven’t, I’ve not been savvy with my pensions but I could use the pension payments to pay AVC’s I will look into this, thank you.