Timing of taking DB pension

Taggy135

Hi, I had always assumed that waiting until NRA was the best way to maximise my deferred DB pension, but having read a few threads on here and getting some quotes recently have made me reconsider this so would welcome any comments on my thinking. 

I have 20 full years of deferment as of Oct 2021 and my NRA is May 2022. 

If I take the pension 6 months early in Nov 2021 there is an actuarial reduction of 2%

However taking it early also should mean an increase in April 2022 by RPI (Dec 2021rate) prorated for period Nov 2021 to Mar 2022 in which the pension taken. Then the following April 2023 there should be a full years increase at RPI (Dec 2022 rate), rather than only prorated from May 2022. Both of these increases would offset some of the 2% actuarial reduction, and I would get the pension for 6 months more. 

Whether this is actually worth doing will depend on CPI at Dec 2021 for deferred increase, RPI at Dec 2021, RPI at Dec 2022  - is there any where to look up estimates of what these factors are likely to be? 

Does my reasoning make sense?

MX5huggy

RPI is always more then CPI (someone will now find a month that this was not true). 

https://actuaries.blog.gov.uk/2021/08/23/measures-of-price-inflation-rpi-cpi-and-cpih/

Albermarle

In my recent experience dealing with DB pension administrators , it can take them 6 months to even pay the pension , so the question might answer itself. 

Taggy135

Thank you for your replies. I would have thought that if I applied for a particular quote on a particular date, then even if it takes  longer to process it would be back dated to that date with the relevant factors used? Looking for estimates of CPI and RPI for Dec 2021, and RPI for Dec 2022 to inform decision as to whether to take the pension before May next year. 

marlot

Taggy135 said:

Thank you for your replies. I would have thought that if I applied for a particular quote on a particular date, then even if it takes  longer to process it would be back dated to that date with the relevant factors used?...

Mine wasn't.  I'd tried to get it started from 1 Jan, and returned all the paperwork in good time.  It started a month later, with no backdating.  On the positive side, the delay meant that it paid out a few pounds a month more than had been scheduled.

Albermarle

I applied for an illustration in late April. Took one month to arrive. Then requested a 'Retirement pack' (another fortnight) and sent it back immediately . Received info back that pension would start mid August . This date came and went with nothing happening .
To cut a long story short ( interventions from ex employer , official complaints etc ) first payment is due mid October , backdated to mid August, which was 3.5 month after I first contacted them ( Mercer) and two months after I actually applied to take the pension.

Silvertabby

Is there an automatic lump sum attached to this pension, or do you intend to take a lump sum by commuting part of your pension?

If not, and you take the full pension early, then that will still increase the following April.

However, take the pension plus any lump sum early, and you miss out on the following April's full increase, as only the 'residual' pension will have the increase applied, not the already paid out lump sum.

So, you could be looking a little more than an early payment reduction of 2%, as next April's RPI could be as much as 4%.
 

Taggy135

 I am planning to take whole pension with no lump sum to maximise inflation proofing over the years.

So if next April's RPI could be as much as 4%, and I managed to take pension 6 months early with 2% actuarial reduction, this reduction could be offset by the RPI increase for having the pension in payment longer?

Silvertabby

Taggy135 said:

 I am planning to take whole pension with no lump sum to maximise inflation proofing over the years.

So if next April's RPI could be as much as 4%, and I managed to take pension 6 months early with 2% actuarial reduction, this reduction could be offset by the RPI increase for having the pension in payment longer?

Not far off.  However, note that the (assumed!) 4% increase next April would be applied to the (early payment) reduced pension and so would be a slightly lesser amount than 4% of the untaken full pension.  And so on, and so on.

Unless your pension is huge, you won't see much of a difference overall - it would have been the increase on a lump sum that would have made it worthwhile waiting.

twiglet98

Silvertabby said:

Is there an automatic lump sum attached to this pension, or do you intend to take a lump sum by commuting part of your pension?

If not, and you take the full pension early, then that will still increase the following April.

However, take the pension plus any lump sum early, and you miss out on the following April's full increase, as only the 'residual' pension will have the increase applied, not the already paid out lump sum.

So, you could be looking a little more than an early payment reduction of 2%, as next April's RPI could be as much as 4%.
 

I'm in a broadly similar position, NRA June 2022, thinking of retiring from current p/t job on 31 March 2022 (in time for my grandson's Easter school holiday).  DB pension from job I left in 1986 will provide just over £20k lump sum for some work on my house.  Better, then, to take it from (1st?) May rather than 1 April?

Silvertabby

twiglet98 said:

Silvertabby said:

Is there an automatic lump sum attached to this pension, or do you intend to take a lump sum by commuting part of your pension?

If not, and you take the full pension early, then that will still increase the following April.

However, take the pension plus any lump sum early, and you miss out on the following April's full increase, as only the 'residual' pension will have the increase applied, not the already paid out lump sum.

So, you could be looking a little more than an early payment reduction of 2%, as next April's RPI could be as much as 4%.
 

I'm in a broadly similar position, NRA June 2022, thinking of retiring from current p/t job on 31 March 2022 (in time for my grandson's Easter school holiday).  DB pension from job I left in 1986 will provide just over £20k lump sum for some work on my house.  Better, then, to take it from (1st?) May rather than 1 April?

When is the annual cost of living increase applied to your DB pension?  If public sector (or same rules as public sector) then it is the first Monday on or after 6 April - so anytime after then.