Delay taking DB pension??

Silvertabby

Scrounger said:

Shabbycat said:

Scrounger said:

AFAIK, if she were to delay taking her CS classic pension until the first Monday after 6 April 2023, she would also qualify for the CPI uplift on the tax free lump sum.

As we are in for a bumper CPI this year, maybe 10%, perhaps this could be a worthwhile reason to delay for a few months?

I'm thinking of doing something similar myself. 

Scrounger

So the CPI isn’t added on a pro rata basis depending on when your birthday is?? 

Not for the tax free lump sum once it has been paid out.

[In my case could be an extra £4k tax free for just a 6 week delay.]

Anybody like to confirm?  @hugheskevi @Silvertabby

Scrounger

As far as the LGPS is concerned, as long as you have been deferred for at least 12 months then, yes, it would make sense to further defer until after next April's cost of living increase has been applied.

If taken before then, the pension in payment will increase -  but not the lump sum already taken.

This applies not only to any automatic lump sum (pre 2008 LGPS service) but also any extra commuted lump sum, as the commuted sum will be higher if taken from the increased pension.

hugheskevi

Scrounger said:

Shabbycat said:

Scrounger said:

AFAIK, if she were to delay taking her CS classic pension until the first Monday after 6 April 2023, she would also qualify for the CPI uplift on the tax free lump sum.

As we are in for a bumper CPI this year, maybe 10%, perhaps this could be a worthwhile reason to delay for a few months?

I'm thinking of doing something similar myself. 

Scrounger

So the CPI isn’t added on a pro rata basis depending on when your birthday is?? 

Not for the tax free lump sum once it has been paid out.

[In my case could be an extra £4k tax free for just a 6 week delay.]

Anybody like to confirm?  @hugheskevi @Silvertabby

Scrounger

I think she would receive a "second-bite lump sum" in April, ie, an additional Pension Commencement Lump Sum which accounts for inflation between April 2022 and her birthday. But I'm not 100% au-fait with that area and whether there are differences between active and deferred members, so would confirm with scheme administrator.

Dazed_and_C0nfused

I thought there had been a thread recently about inflation increases in the year a deferred civil service pension starts and this thread has confused things in my mind!

Say the op has a deferred pension worth £5,000 after the April 2022 increase has been applied.  They could take the Classic pension on say 1 February 2023.  No increase is due then so the pension is £5,000.  With a £15,000 PCLS.

For deferred pensioners the April 2023 increase is looking increasingly likely to be in the region of 10%.  But someone who commenced a pension on 1 February would only get 2/12ths of this so say 1.67%.

Making a pension of £5083 in 2023:24.  

So at the end of the 2023:24 tax year the total received would be £833 + £15,000 + £5083 = £20,916.

But if the pension was deferred until immediately after 6 April 2023 (or is it after 1 April 2023?) then as a deferred pensioner the pension will be £5,500.  And at the end of the 2023:24 tax year the total received would be £5,395 (reduced from £5,500 to reflect taking at a week into the new tax year) + PCLS of £16,500 = £22,000, over £1k more for deferring it for a couple of months.  

And that assumes nothing is paid for that two month period of additional deferral from February to April.

Presumably the April 2024 inflation increase would be fractionally less than normal as the pension started just info the 2023:24 tax year but it would be an increase on £5,500 not £5,083.

I feel I'm missing something blindingly obvious here 🤔.  Hopefully @hugheskevi will put me out of my misery!

hugheskevi

Dazed_and_C0nfused said:

Say the op has a deferred pension worth £5,000 after the April 2022 increase has been applied.  They could take the Classic pension on say 1 February 2023.  No increase is due then so the pension is £5,000.  With a £15,000 PCLS.

By 1 February 2023 the Public Service Pension increase: 2023 figures should have been published, so the deferred classic pension could be calculated to include revaluation to date of payment (1 February).

So the pension put into payment could be about £5,000 x (10/12) x 10% = £5,417. Although the Increase Order wouldn't have come into effect at that date, so it might be based on £5,000 and then arrears and second bite lump sum paid in March or April when the order comes into effect - I'm not sure exactly how it works.

For deferred pensioners the April 2023 increase is looking increasingly likely to be in the region of 10%.  But someone who commenced a pension on 1 February would only get 2/12ths of this so say 1.67%.

That would be the indexation part (2 months), they would still get revaluation (10 months).

In this case, it doesn't matter about the division between revaluation and indexation, as both are full, uncapped CPI. However, in many schemes that won't be the case, and very often members would receive full uncapped CPI/RPI from revaluation (ie c10%, as revaluation caps are applied cumulatively over period of deferment and most members have considerable headroom due to past low inflation) but only 2.5% / 5% capped indexation (as these caps are applied annually, not cumulatively) - in those cases it may well be better delaying commencement of pension.

Dazed_and_C0nfused

Marvellous!  This was the bit I was missing, I hadn't appreciated that this would happen so mistakenly thought that the cross over year from deferred pensioner to being an actual pensioner meant you lost a big chunk of the inflation element.

But clearly not, it's just split into two separate bits (for this particular scheme) 😀

So the pension put into payment could be about £5,000 x (10/12) x 10% = £5,417. Although the Increase Order wouldn't have come into effect at that date, so it might be based on £5,000 and then arrears and second bite lump sum paid in March or April when the order comes into effect - I'm not sure exactly how it works.

Shabbycat

That’s all gone a bit over my head. Are you saying it will make no difference if she takes it in October as she will get a second amount of lump sum in April 23?? I don’t think there is any inflation cap on a Classic pension??? 

Scrounger

I may be wrong but something tells me that she won't get a second lump sum in April 23 (especially as a deferred member).

In the absence of further definitive responses from any other CS classic experts on here (eg @Kynthia, @hubb, @hyubh maybe @dunstonh ), I intend posing the question in writing to myCSP. 

The only problem with that is that it will probably take about 10 weeks to elicit a response!

Scrounger

Shabbycat

Scrounger said:

I may be wrong but something tells me that she won't get a second lump sum in April 23 (especially as a deferred member).

In the absence of further definitive responses from any other CS classic experts on here (eg @Kynthia, @hubb, maybe @dunstonh ), I intend posing the question in writing to myCSP. 

The only problem with that is that it will probably take about 10 weeks to elicit a response!

Scrounger

Thank you so much. I didn’t realise it was so complicated.

Scrounger

Regarding classic; I have today emailed  myCSP asking for clarification of how the 2023 increase will be applied the classic pension & lump sum (when pension taken prior to 10 April 23) and if there is a 'second bite' lump sum etc.

Once I receive a response I'll update with what they have to say.

Scrounger

Shabbycat

Scrounger said:

Regarding classic; I have today emailed  myCSP asking for clarification of how the 2023 increase will be applied the classic pension & lump sum (when pension taken prior to 10 April 23) and if there is a 'second bite' lump sum etc.

Once I receive a response I'll update with what they have to say.

Scrounger

Thank you, much appreciated.