Civil Service Deferred Classic pension

Sunsh1ne54

Hi, I’m after a sounding board here if I may. Some of you, I know, are very knowledgeable on these matters. 

Are there any advantages/disadvantages to buying out (or just claiming and not buying out) my deferred Civil Service pension 2 years early, whilst still working for another 6 months in a non Civil Service job? I’m doing comparisons as I’d like to give up working completely at 58 and a half. Not sure if leaving pension well alone and living off savings for 18 months is the most sensible option. Thanks in advance   

Linton

Sunsh1ne54 said:

Hi, I’m after a sounding board here if I may. Some of you, I know, are very knowledgeable on these matters. 

Are there any advantages/disadvantages to buying out (or just claiming and not buying out) my deferred Civil Service pension 2 years early, whilst still working for another 6 months in a non Civil Service job? I’m doing comparisons as I’d like to give up working completely at 58 and a half. Not sure if leaving pension well alone and living off savings for 18 months is the most sensible option. Thanks in advance   

What do you mean by "buy out".  If you mean converting its value to cash you cannot do that with a Civil Service pension. 

Sunsh1ne54

Linton said:

Sunsh1ne54 said:

Hi, I’m after a sounding board here if I may. Some of you, I know, are very knowledgeable on these matters. 

Are there any advantages/disadvantages to buying out (or just claiming and not buying out) my deferred Civil Service pension 2 years early, whilst still working for another 6 months in a non Civil Service job? I’m doing comparisons as I’d like to give up working completely at 58 and a half. Not sure if leaving pension well alone and living off savings for 18 months is the most sensible option. Thanks in advance   

What do you mean by "buy out".  If you mean converting its value to cash you cannot do that with a Civil Service pension. 

You can purchase the pension years/months for early payment so you get the full pension early 

NedS

I've never looked at the buy out options in detail, but if I understand correctly you are paying a lump sum amount to 'buy out' the actuarial reduction of taking your pension early. Essentially you are converting a cash sum into more index-linked DB pension, so for me it would come down to how much DB income you will have in retirement and if you feel actuarial reduction would be detrimental to your long term retirement planning.

I haven't played with the calculator, but I am assuming as you are 'buying out' the actuarial reduction, which is designed to be fair to both scheme and member, that any buyout of that reduction would be equally fair (assuming you live to average age).

The only other consideration I can think that may be relevant is that you would be making the buyout from taxed income to essentially purchase more DB pension that will then be taxed (again), which is not very tax efficient (unless I misunderstand the process). Unless you are maybe 'recycling' a tax free pension lump sum to make the purchase.

Seems like your options are:

1. Take DB pension at NRA without reduction and use your cash to help fund the gap

2. Take DB pension early with actuarial reduction and use the cash to top it up

3. Take DB pension early unreduced having used the cash to buy out the actuarial reduction

Are you able to put some specific figures on it so we can see what you are considering?

OldBeanz

Sunsh1ne54 said:

Linton said:

Sunsh1ne54 said:

Hi, I’m after a sounding board here if I may. Some of you, I know, are very knowledgeable on these matters. 

Are there any advantages/disadvantages to buying out (or just claiming and not buying out) my deferred Civil Service pension 2 years early, whilst still working for another 6 months in a non Civil Service job? I’m doing comparisons as I’d like to give up working completely at 58 and a half. Not sure if leaving pension well alone and living off savings for 18 months is the most sensible option. Thanks in advance   

What do you mean by "buy out".  If you mean converting its value to cash you cannot do that with a Civil Service pension. 

You can purchase the pension years/months for early payment so you get the full pension early 

Never read about this option for those who have left the service. Do you have a link?

westv

Isn't it more a "buy in" rather than "buy out"?

GrubbyGirl_2

if it's anything like the NHS pension if you take it 2 years early you lose 10% of the value so personally I'd freeze it, do another job and claim at the correct retirement age

Sunsh1ne54

GrubbyGirl_2 said:

if it's anything like the NHS pension if you take it 2 years early you lose 10% of the value so personally I'd freeze it, do another job and claim at the correct retirement age

Yes that’s very similar, thanks 

Sunsh1ne54

OldBeanz said:

Sunsh1ne54 said:

Linton said:

Sunsh1ne54 said:

Hi, I’m after a sounding board here if I may. Some of you, I know, are very knowledgeable on these matters. 

Are there any advantages/disadvantages to buying out (or just claiming and not buying out) my deferred Civil Service pension 2 years early, whilst still working for another 6 months in a non Civil Service job? I’m doing comparisons as I’d like to give up working completely at 58 and a half. Not sure if leaving pension well alone and living off savings for 18 months is the most sensible option. Thanks in advance   

What do you mean by "buy out".  If you mean converting its value to cash you cannot do that with a Civil Service pension. 

You can purchase the pension years/months for early payment so you get the full pension early 

Never read about this option for those who have left the service. Do you have a link?

No sorry but you can find actuarial buyout calculators on the Civil Service pension website. I can’t seem to copy the link 

Sunsh1ne54

NedS said:

I've never looked at the buy out options in detail, but if I understand correctly you are paying a lump sum amount to 'buy out' the actuarial reduction of taking your pension early. Essentially you are converting a cash sum into more index-linked DB pension, so for me it would come down to how much DB income you will have in retirement and if you feel actuarial reduction would be detrimental to your long term retirement planning.

I haven't played with the calculator, but I am assuming as you are 'buying out' the actuarial reduction, which is designed to be fair to both scheme and member, that any buyout of that reduction would be equally fair (assuming you live to average age).

The only other consideration I can think that may be relevant is that you would be making the buyout from taxed income to essentially purchase more DB pension that will then be taxed (again), which is not very tax efficient (unless I misunderstand the process). Unless you are maybe 'recycling' a tax free pension lump sum to make the purchase.

Seems like your options are:

1. Take DB pension at NRA without reduction and use your cash to help fund the gap

2. Take DB pension early with actuarial reduction and use the cash to top it up

3. Take DB pension early unreduced having used the cash to buy out the actuarial reduction

Are you able to put some specific figures on it so we can see what you are considering?

My pension if taken at 60 will be £14,353 with a lump sum of £43,059. I have a small DC pension pot if £50k and I don’t know whether it’s best to buyout the CS pension or use the DC pot to help cover 18 months before I’m 60…

Sunsh1ne54

NedS said:

I've never looked at the buy out options in detail, but if I understand correctly you are paying a lump sum amount to 'buy out' the actuarial reduction of taking your pension early. Essentially you are converting a cash sum into more index-linked DB pension, so for me it would come down to how much DB income you will have in retirement and if you feel actuarial reduction would be detrimental to your long term retirement planning.

I haven't played with the calculator, but I am assuming as you are 'buying out' the actuarial reduction, which is designed to be fair to both scheme and member, that any buyout of that reduction would be equally fair (assuming you live to average age).

The only other consideration I can think that may be relevant is that you would be making the buyout from taxed income to essentially purchase more DB pension that will then be taxed (again), which is not very tax efficient (unless I misunderstand the process). Unless you are maybe 'recycling' a tax free pension lump sum to make the purchase.

Seems like your options are:

1. Take DB pension at NRA without reduction and use your cash to help fund the gap

2. Take DB pension early with actuarial reduction and use the cash to top it up

3. Take DB pension early unreduced having used the cash to buy out the actuarial reduction

Are you able to put some specific figures on it so we can see what you are considering?

Also I plan to continue working for another 7 months into 2023 and to reinvest my CS pension to avoid higher tax (my salary is approx £40k) thanks