LGPS - When is the best time to take my pension?

Silvertabby

PaulbytheRidgeway said:

Like many others I'm lucky enough to be in the LGPS and have been a member since 2000. I'm 53 and have been running the numbers.  For these calcs I've ignored state pension, rule of 85 and other protections etc.  I've based figures below on a forecast all-in (DB and CARE) LGPS pension of £25k at 67 just to keep it simple and non-personal. I've also ignored reductions for lump sum.  Percentage reductions are based on July 23 changes available at the LGPS member 'taking your pension' webpage, so you can do these for age 55 or 56 if you like - you might want to use your latest LGPS pension statement to make it more specific. 

All I've done, hopefully without errors,  is work out the reduction from the age 67 pension and multiply this by number of years this will be paid until 80. This doesn't take account of state pension. I've also done this for age 90 (as if!) by adding another 10 years to each sum.  

• Age 67 – My standard pension age - no reduction Total to 80 (13 yrs) at £25k p.a. =  £325k  (to 90, £575k)
• Age 57 (10 years early) 35.6% loss Total to 80 (23 yrs) at £16.1k p.a. = £339k   (to 90, £531k)
• Age 60 (7 years early) 27.4% loss. Total to 80 (20 yrs) at £18.5k p.a. = £363k  (to 90, £555k)
• Age 62 (5 years early), 20.9% loss. Total to 80 (18yrs) at £19.5k p.a. = £355k  (to 90, £554k)
• Age 64 (3 years early), 13.5% loss. Total to 80 (16yrs) at £21.6k p.a. = £346k (to 90, £562k)

There appears to be a bit of a 'sweet' spot at 60 when total pension paid out to 80 is maximised - but note that this sweetness seems to turn sour up to 90 when you benefit from the higher annual pension....

I guess it's all down to personal health, lifestyle preferences, dependents, legacies and other finances......but I know where I am aiming for ;-) 

Do these figures take into account meeting R85 at age 60 in respect of your pre 2008 accruals?  If not, then going at 60 could be even more attractive.

Add:  Minimum retirement age for R85 is still 60.  Pension may be taken before then, but subject to early payment reductions even if, technically, R85 is reached before 60.

PaulbytheRidgeway

@Silvertabby.  No, the figs don't take account of R85 as my poor brain couldn't cope. For those that do qualify (incl me) it will be a bonus...and as you say even more attractive :-)    But R85 is a reason I wouldn't look at going before 60 as I think there's restrictions on the pre-2008 lump sum before 60 too.  In the meantime like others I am sure, I am making the most of LGPS AVC and separate private SIPP for tax friendly saving. I have a private SIPP just so I can transfer my LGPS AVC into the SIPP for earlier use if I want to....as under LGPS rules you can only drawdown from AVC at the same time as taking main LGPS...but transferring to a private SIPP is not a drawdown.  I can then use the SIPP as I want to. 

Silvertabby

PaulbytheRidgeway said:

@Silvertabby.  No, the figs don't take account of R85 as my poor brain couldn't cope. For those that do qualify (incl me) it will be a bonus...and as you say even more attractive :-)    But R85 is a reason I wouldn't look at going before 60 as I think there's restrictions on the pre-2008 lump sum before 60 too.  In the meantime like others I am sure, I am making the most of LGPS AVC and separate private SIPP for tax friendly saving. I have a private SIPP just so I can transfer my LGPS AVC into the SIPP for earlier use if I want to....as under LGPS rules you can only drawdown from AVC at the same time as taking main LGPS...but transferring to a private SIPP is not a drawdown.  I can then use the SIPP as I want to. 

The most popular reason for paying into LGPS AVCs is the tax relief in / tax free (within HMRC limits) out.  Yes, you can transfer to a SIPP and then drawdown - but you would be limited to just 25% tax free instead of (possibly)  100%.  And if your AVC pot did exceed the HMRC limit, you could use the excess to buy additional index linked LGPS benefits.

PaulbytheRidgeway

All great points, esp the index linked angle for additional LGPS  - thanks.  Yes, I am keeping as many options open as possible and trying to squirrel away as much tax relief as I can.....and reduce outgoings in the meantime of course

Gimmeaminute

Having done the numbers I actually did take my pension at 55 in the end. The reductions for taking the pension earlier than 60 or later were minimal in the end and I now get to save £1000+ per month which I can get at immediately for kid's Uni expenses or save in ISAs getting 5% or more interest. I'd much rather be able to access and enjoy the cash now than wait till I am 65+ when I'm perhaps not as mobile/able to have fun with the cash. Given that it is a DB scheme I'd much rather start drawing it now and get as much cash back as possible. If I die at 66, at least I will have been paid 11 years of pension, not just 1 year of a slightly higher amount.

My thinking is, that what I have done will give me the highest possible return by the age of 80, after that age, who cares?

SarahB16

All I've done, hopefully without errors,  is work out the reduction from the age 67 pension and multiply this by number of years this will be paid until 80. This doesn't take account of state pension. I've also done this for age 90 (as if!) by adding another 10 years to each sum.  

• Age 67 – My standard pension age - no reduction Total to 80 (13 yrs) at £25k p.a. =  £325k  (to 90, £575k)
• Age 57 (10 years early) 35.6% loss Total to 80 (23 yrs) at £16.1k p.a. = £339k   (to 90, £531k)
• Age 60 (7 years early) 27.4% loss. Total to 80 (20 yrs) at £18.5k p.a. = £363k  (to 90, £555k)
• Age 62 (5 years early), 20.9% loss. Total to 80 (18yrs) at £19.5k p.a. = £355k  (to 90, £554k)
• Age 64 (3 years early), 13.5% loss. Total to 80 (16yrs) at £21.6k p.a. = £346k (to 90, £562k)

I too am in the LGPS scheme (joined in 2009 so pension benefits accrued pre-2014) and still contributing to my LGPS pension.  I was going to post a question in a new thread but I can see my question is relevant to you which you may have considered but chose to ignore to keep your calculations simple.

I believe the retirement age for the pre-2014 tranche is 65 and for the post-2014 tranche is state pension age (so currently 67).  If the LGPS pension is taken before the age of 65, let's say 60, will one tranche (the pre-2014 benefits) have an actuarial reduction of 5 years applied and the post-2014 pension benefits (built up under CARE) have an actuarial reduction of 7 years applied? 

Thank you in advance for helpful replies.   

Silvertabby

SarahB16 said:

All I've done, hopefully without errors,  is work out the reduction from the age 67 pension and multiply this by number of years this will be paid until 80. This doesn't take account of state pension. I've also done this for age 90 (as if!) by adding another 10 years to each sum.  

• Age 67 – My standard pension age - no reduction Total to 80 (13 yrs) at £25k p.a. =  £325k  (to 90, £575k)
• Age 57 (10 years early) 35.6% loss Total to 80 (23 yrs) at £16.1k p.a. = £339k   (to 90, £531k)
• Age 60 (7 years early) 27.4% loss. Total to 80 (20 yrs) at £18.5k p.a. = £363k  (to 90, £555k)
• Age 62 (5 years early), 20.9% loss. Total to 80 (18yrs) at £19.5k p.a. = £355k  (to 90, £554k)
• Age 64 (3 years early), 13.5% loss. Total to 80 (16yrs) at £21.6k p.a. = £346k (to 90, £562k)

I too am in the LGPS scheme (joined in 2009 so pension benefits accrued pre-2014) and still contributing to my LGPS pension.  I was going to post a question in a new thread but I can see my question is relevant to you which you may have considered but chose to ignore to keep your calculations simple.

I believe the retirement age for the pre-2014 tranche is 65 and for the post-2014 tranche is state pension age (so currently 67).  If the LGPS pension is taken before the age of 65, let's say 60, will one tranche (the pre-2014 benefits) have an actuarial reduction of 5 years applied and the post-2014 pension benefits (built up under CARE) have an actuarial reduction of 7 years applied? 

Thank you in advance for helpful replies.   

Yes, exactly that.

As you are no doubt aware, only those who joined before October 2006 have any R85 protections.

theoretica

There is also the McCloud remedy to be aware of - which I don't understand well enough to explain, but I think gives some people choice between old and new pension rules for 2014-2022.

https://www.lgpsmember.org/mccloud-remedy/

PaulbytheRidgeway

Gimmeaminute said:

Having done the numbers I actually did take my pension at 55 in the end. The reductions for taking the pension earlier than 60 or later were minimal in the end and I now get to save £1000+ per month which I can get at immediately for kid's Uni expenses or save in ISAs getting 5% or more interest. I'd much rather be able to access and enjoy the cash now than wait till I am 65+ when I'm perhaps not as mobile/able to have fun with the cash. Given that it is a DB scheme I'd much rather start drawing it now and get as much cash back as possible. If I die at 66, at least I will have been paid 11 years of pension, not just 1 year of a slightly higher amount.

My thinking is, that what I have done will give me the highest possible return by the age of 80, after that age, who cares?

This is great to know Gimmeaminute - and thank you for the update. It's always nice to see the end result of forum thought processes and discussions!  Good luck for the future and making it past 80 to the land of 'who cares'  :-

PaulbytheRidgeway

theoretica said:

There is also the McCloud remedy to be aware of - which I don't understand well enough to explain, but I think gives some people choice between old and new pension rules for 2014-2022.

https://www.lgpsmember.org/mccloud-remedy/

If you are still in LGPS in a couple of years time then your 2025 annual benefit statements will include information about the remedy if you qualify.  It is probably only of value if at retirement you have more years in final salary element compared to years in the CARE part.  Whatever happens I think its always worth trying to get promoted/paid more in the three years preceding your secret/overt planned retirement date!