Taking DB Pension Early

Sunsh1ne54

Hi, my first post here…
I’m considering taking my DB Civil Service pension 2 years early, with actuarial reduction. 

I’m keen to hear the arguments for and against this. Does anyone have any views please?

Dazed_and_C0nfused

What is the percentage reduction for getting your pension for an extra 2 years?

Will you be paying tax on it?  If so 20%?  Or 40%?  Or a mix of 20% and 40%?

Have you checked your State Pension forecast and understood the possible impact on reaching the standard new State Pension. 

You must read your forecast in full, the headline figure can be misleading if you won't accrue all the years to your normal State Pension age, particularly when you have contracted out years.

NedS

Actuarial reduction is designed to be fair, both to you and to the scheme. You are receiving a smaller pension for a longer period. Assuming you live to the average age, you would receive the same amount of money from the pension overall. Die young, and you would have likely benefited having taken the pension earlier, live longer and you will lose out slightly by having a smaller pension for longer.

Have you considered any alternatives? Do you have any savings or other pensions you could use to fund that two year period rather than reducing an index-linked (gold plated) CS pension.

What CS pension is it? Classic, Alpha?

Somebody

Your personal circumstances will impact on the answer.

Are you still working? Do you need the extra income to survive?  If still working and you don’t need the extra money then obviously no to taking it early. 

Do you have an immediate need to use the tax free lump sum?

Sunsh1ne54

Thanks for replies. I’m awaiting a calculation from My CSP.  Considering retiring by end of next year and in the meantime increasing my contributions to my current DC pot to avoid paying higher tax on it whilst still employed. I figure by doing this I can add to funds and cover lower pension when I do retire. Also, I’ll be in a position to leave current full-time employment with pension already in place… the sums seem to indicate this would be a good move financially - but have I missed something? Thanks 

saucer

You’re not missing anything obvious and NedS has summarised how actuarial reduction works. It’s easy to forget that although you are getting a slightly lower pension if taking it early, you have contributed for less time and will get it for longer. 

Sunsh1ne54

I should have added that I’ve checked my NI contributions and I’m fully paid up. 

My CS pension is Classic. It will cover my outgoings even on the lower amount (I’m guessing I’ll lose around 10%). I also looked at buy out but that doesn’t seem beneficial. 

Sunsh1ne54

saucer said:

You’re not missing anything obvious and NedS has summarised how actuarial reduction works. It’s easy to forget that although you are getting a slightly lower pension if taking it early, you have contributed for less time and will get it for longer. 

Thanks Saucer, what is NedS? 

Sunsh1ne54

Sunsh1ne54 said:

saucer said:

You’re not missing anything obvious and NedS has summarised how actuarial reduction works. It’s easy to forget that although you are getting a slightly lower pension if taking it early, you have contributed for less time and will get it for longer. 

Thanks Saucer, what is NedS? 

Oh sorry I’ve just read NedS reply 😊

Sunsh1ne54

NedS said:

Actuarial reduction is designed to be fair, both to you and to the scheme. You are receiving a smaller pension for a longer period. Assuming you live to the average age, you would receive the same amount of money from the pension overall. Die young, and you would have likely benefited having taken the pension earlier, live longer and you will lose out slightly by having a smaller pension for longer.

Have you considered any alternatives? Do you have any savings or other pensions you could use to fund that two year period rather than reducing an index-linked (gold plated) CS pension.

What CS pension is it? Classic, Alpha?

Thanks NedS, it’s the Classic pension, deferred. 

NedS

Sunsh1ne54 said:

NedS said:

Actuarial reduction is designed to be fair, both to you and to the scheme. You are receiving a smaller pension for a longer period. Assuming you live to the average age, you would receive the same amount of money from the pension overall. Die young, and you would have likely benefited having taken the pension earlier, live longer and you will lose out slightly by having a smaller pension for longer.

Have you considered any alternatives? Do you have any savings or other pensions you could use to fund that two year period rather than reducing an index-linked (gold plated) CS pension.

What CS pension is it? Classic, Alpha?

Thanks NedS, it’s the Classic pension, deferred. 

Because it's deferred, is it being revalued by CPI each year?