LGPS forecast

jamesd

In general, one way to efficiently manage early retirement from a defined benefit pension like LGPS is to pay into a personal pension then draw on that and eventually take the DB pension at the scheme normal pension age, or R85 if that applies.

The reason this is efficient is that it reduces or eliminates the actuarial reduction for taking the pension early. 

Since you're 59 now you're already above the 55 age where you can take money out of personal pensions. You can do this in three main ways:

1. Up to three times in your life you can take all of a pot worth up to £10k as a small pot. This payment will be 25% tax free and 75% taxable. This does not trigger the MPAA and there are no restrictions on recycling the tax free or taxable part into more pension contributions.

2. You can take any portion of the pot using UFPLS. This payment is 25% tax free and 75% taxable. This triggers the MPAA and limits you to no more than £4,000 of pension contributions per year into defined contribution pensions - those with investments you can see and control; DB aren't affected. There are no restrictions on recycling the taxable part into more pension contributions. There are limits on recycling the tax free part, the easiest one being that it's within the rules to take up to £7,500 tax free from all types except 1 per rolling twelve month period (not tax or calendar year) and recycle any of that.

3. You can take a tax free lump sum of 25% from any portion of the pot and place the remaining 75% into a flexi-access drawdown account to be taken as taxable income later. Taking the 25% doesn't trigger the MPAA, taking any of the taxable part does. The taxable part has no recycling restrictions, the tax free part is part of the same restrictions as the tax free part in 2.

This means that you can take out a substantial amount of personal pension money even while still working. It typically makes it a good idea to put most savings into a pension since access us now easy. For personal contributions you're limited to paying in a gross amount equal to your gross pay. That"s a net amount equal to your gross pay times 0.8.

Because you are likely to spend some time not working and not getting the DB or state pensions it's likely that you'll be able to use method 3 to take out the taxable part free of tax inside your income tax personal allowance. While still working you can use method 1 up to three times, then just the tax free withdrawing part of 3.

sevenhills

jamesd said:

The reason this is efficient is that it reduces or eliminates the actuarial reduction for taking the pension early. 

Is age discrimination still allowed?

They are trying to force me to retire at the state pension age, I understood people are no longer forced to retire at a set age, because that would be age discrimination.

I know some older workers can be more reliable, but an older/less healthy worker that wants to retire and will be penalised if they do so, doesnt seem right.

AlanP_2

sevenhills said:

jamesd said:

The reason this is efficient is that it reduces or eliminates the actuarial reduction for taking the pension early. 

Is age discrimination still allowed?

They are trying to force me to retire at the state pension age, I understood people are no longer forced to retire at a set age, because that would be age discrimination.

I know some older workers can be more reliable, but an older/less healthy worker that wants to retire and will be penalised if they do so, doesnt seem right.

Do you mean an actuarial reduction for early retiremement is age discrimnination?

They aren't forcing you to retir at state pension age, they are offering you a defined benefit pension at the scheme Normal Retirement Age.

For the LGPS this happens to be SP age since the 2014 changes buy my pre-2014 benefits still have an NRA of 65 as per the scheme rules that applied then.

If you feel imposing an actuarial; reduction for early retiremement is unreasonable and age discrimination then opt out of the scheme, or, come up with a better way for adjusting the amount paid to people who retire at 55 instead of 66 (and so get pension for 11 additional years) that doesn't cost the members who stay until 66 part of their "nominal value" to subsidise the early leavers.

OldBeanz

My wife - late 50's - asked to buy more pension. She was told she needed to take a medical. Her doctor's secretary suggested the doctor had better things to be doing at present. The LGPS relented. One might imagine someone in their 20's would not have been asked or is everyone who buys extra pension subject to a medical?

sevenhills

AlanP_2 said:

If you feel imposing an actuarial; reduction for early retiremement is unreasonable and age discrimination then opt out of the scheme, or, come up with a better way for adjusting the amount paid to people who retire at 55 instead of 66 (and so get pension for 11 additional years) that doesn't cost the members who stay until 66 part of their "nominal value" to subsidise the early leavers.

This is why I am confused by my pension statements. It gives figures of Total yearly "pension=£4,079.46andOne-offlumpsum£1,242.90"

It then goes on to give how much I would get if I retire at 60(£3,592), which is lower.

So I assume the £4,079 figure is how much has been paid in by myself and my employer. So it would be fair for me to keep those amounts.

Silvertabby

sevenhills said:

AlanP_2 said:

If you feel imposing an actuarial; reduction for early retiremement is unreasonable and age discrimination then opt out of the scheme, or, come up with a better way for adjusting the amount paid to people who retire at 55 instead of 66 (and so get pension for 11 additional years) that doesn't cost the members who stay until 66 part of their "nominal value" to subsidise the early leavers.

This is why I am confused by my pension statements. It gives figures of Total yearly "pension=£4,079.46andOne-offlumpsum£1,242.90"

It then goes on to give how much I would get if I retire at 60(£3,592), which is lower.

So I assume the £4,079 figure is how much has been paid in by myself and my employer. So it would be fair for me to keep those amounts.

The figure of £4,079 is nothing to do with your contributions.  That's not how DB schemes work.

The early retirement reduction is not age discrimination - it's just taking into account the fact that you will be drawing your accrued benefits for longer.

sevenhills

Silvertabby said:

The figure of £4,079 is nothing to do with your contributions.  That's not how DB schemes work.

I don't seem to be able to find out what that figure represents, its roughly what I would get if I retired at 62, the statement states the figure for 60/65/67

OldBeanz

sevenhills said:

Silvertabby said:

The figure of £4,079 is nothing to do with your contributions.  That's not how DB schemes work.

I don't seem to be able to find out what that figure represents, its roughly what I would get if I retired at 62, the statement states the figure for 60/65/67

This gives an indication of how much your pension is reduced if drawing before NRA. 
https://www.lgpsmember.org/more/reductions.php

Most members have access to this site where you can play with figures to your heart's content.
https://lgssmember.pensiondetails.co.uk

Reg_Smeeton

OldBeanz said:

My wife - late 50's - asked to buy more pension. She was told she needed to take a medical. Her doctor's secretary suggested the doctor had better things to be doing at present. The LGPS relented. One might imagine someone in their 20's would not have been asked or is everyone who buys extra pension subject to a medical?

I started buying extra pension via APCs last summer (I'm in my mid 30s). In the APC pack there was some documentation for my doctor to sign that I was likely to be well enough to work for the term of the additional contributions. 

I dropped the form off at the surgery and made an appointment for a telephone consultation with the doctor. The call took about five minutes, then I had to go back to the surgery to pick up the signed form. They did charge me twenty quid though as apparently it is classed as private work.

AlanP_2

sevenhills said:

AlanP_2 said:

If you feel imposing an actuarial; reduction for early retiremement is unreasonable and age discrimination then opt out of the scheme, or, come up with a better way for adjusting the amount paid to people who retire at 55 instead of 66 (and so get pension for 11 additional years) that doesn't cost the members who stay until 66 part of their "nominal value" to subsidise the early leavers.

This is why I am confused by my pension statements. It gives figures of Total yearly "pension=£4,079.46andOne-offlumpsum£1,242.90"

It then goes on to give how much I would get if I retire at 60(£3,592), which is lower.

So I assume the £4,079 figure is how much has been paid in by myself and my employer. So it would be fair for me to keep those amounts.

As explained in earlier posts - The £4,079 annual pension is how much it will be worth at 65/66 (pre-2014 and post-2014 have different Normal Retirement Ages) assuming you left your employer on 31st March (the statement date) and just left it alone until 65/66.

If you want to take the pension before 65/66 then an adjustment has to be made as you will be getting paid the pension for longer so that annual amount is reduced by 4-5% a year - so at age 60 it would be reduced to an annual £3,592 as they state.

If you carry on working for them then the age 65/66 projection will go up as you accrue more service, salary and pension so the figures on the next statement will higher.