Defering a defined benefit pension

Tony_J

Hello
I have a modest Pension due to begin paying when I'm 65 (May next year).  I am still working and probably will be for another 2 or 3 years, so don't need the income yet.  I have been told by the provider it can increase with "late retirement factors". 1 year 1.08, 2 year 1.16, 3 year 1.26...  I have asked for more detail about deferring it.  They did state the increase factors given are subject to change.  Before making the decision I would like to know all implication this may have.  For instance could it have an effect on the annual increase that is currently guaranteed.  Is there anything else I need to check before making the decision to defer.

Marcon

Tony_J said:

Hello
I have a modest Pension due to begin paying when I'm 65 (May next year).  I am still working and probably will be for another 2 or 3 years, so don't need the income yet.  I have been told by the provider it can increase with "late retirement factors". 1 year 1.08, 2 year 1.16, 3 year 1.26...  I have asked for more detail about deferring it.  They did state the increase factors given are subject to change.  Before making the decision I would like to know all implication this may have.  For instance could it have an effect on the annual increase that is currently guaranteed.  Is there anything else I need to check before making the decision to defer.

It is highly unlikely that future pension increases would be impacted by late retirement. The rules of each scheme will set down the exact position, so you really need to ask your own scheme, which you appear to have done - so 'wait for their reply' is the slightly frustrating answer!

snowlaser

You probably should ask whether that 8% pa late retirement factor is IN ADDITION to the pension increases you would otherwise get or whether it is INSTEAD OF the pension increases that you would otherwise get, just so you aren't surprised.

Linton

I doubt anyone here would be able to give you specific information about your pension scheme.  However some questions come to mind…
 Assuming this is your current employer scheme rather than from some previous employer…
1) Will you be required to continue paying into the scheme after the normal retirement date?
2)If so  will your pension be based on your salary at 65 or that when you eventually do retire? Would you accrue more years in addition to the 1.08 factor?.

The answers to these questions could give rise to further complications. If the pension at retirement is based on the later date could your salary decrease or more likely fail to keep up with inflation? In which case you may be worse off deferring since when in payment it could rise with inflation. On the other hand you may only be getting capped inflation increases, in which case deferring the pension may be better.

Tony_J

Linton said:

I doubt anyone here would be able to give you specific information about your pension scheme.  However some questions come to mind…
 Assuming this is your current employer scheme rather than from some previous employer…
1) Will you be required to continue paying into the scheme after the normal retirement date?
2)If so  will your pension be based on your salary at 65 or that when you eventually do retire? Would you accrue more years in addition to the 1.08 factor?.

The answers to these questions could give rise to further complications. If the pension at retirement is based on the later date could your salary decrease or more likely fail to keep up with inflation? In which case you may be worse off deferring since when in payment it could rise with inflation. On the other hand you may only be getting capped inflation increases, in which case deferring the pension may be better.

No it is a job I left in 1995.  I am currently in a defined contribution scheme that I will pay into until I retire

xylophone

No it is a job I left in 1995.

You will almost certainly have a GMP as part of this DB pension.

See re  GMP deferment.

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen

Deferring beyond 60/65
If the member retires more than seven weeks later than their 60th birthday (women) / 65th birthday (men), their accrued GMP must be increased by at least 1/7% for each complete week thereafter.

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Tony_J

xylophone said:

No it is a job I left in 1995.

You will almost certainly have a GMP as part of this DB pension.

See re  GMP deferment.

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen

Deferring beyond 60/65
If the member retires more than seven weeks later than their 60th birthday (women) / 65th birthday (men), their accrued GMP must be increased by at least 1/7% for each complete week thereafter.

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

My state pension forecast is about £5 per week above the new state pension rate.  I guess because of where I worked for a couple of years after 1995.

Marcon

xylophone said:

No it is a job I left in 1995.

You will almost certainly have a GMP as part of this DB pension.

See re  GMP deferment.

https://techzone.abrdn.com/public/pensions/Tech-guide-guaranteed-min-pen

Deferring beyond 60/65
If the member retires more than seven weeks later than their 60th birthday (women) / 65th birthday (men), their accrued GMP must be increased by at least 1/7% for each complete week thereafter.

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

OP - just to do a bit of expectation management, the late retirement factor is likely to take this into account i.e. you won't get 'two' increases on the Guaranteed Minimum Pension part of your pension.  The GMP is the bit you built up in lieu of State Earnings Related Pension, by virtue of the fact your employment was 'contracted out' of SERPS. 

xylophone

OP - just to do a bit of expectation management, 

I was thinking more that the OP might find that he would receive only the statutory  increase of 1/7% on the GMP portion of his deferred pension with just the excess receiving LRI at the Scheme specific rate.

He can check with the administrator of the scheme.