Civil Service Deferred Classic pension

NedS

Sunsh1ne54 said:

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…

I cannot see any good reason to do it, given you would potentially be paying 40% tax or having to contribute the excess back into your DC pension to reduce your taxable income. How would you fund the buy out - do you have cash savings you can use for this?

I would use your DC funds as required to supplement your income until NRA and take the DB pension unreduced at 60. The DB TFLS can then be used to replenish your cash reserves if you've depleted your £50k DC pot.

Sunsh1ne54

NedS said:

Sunsh1ne54 said:

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…

I cannot see any good reason to do it, given you would potentially be paying 40% tax or having to contribute the excess back into your DC pension to reduce your taxable income. How would you fund the buy out - do you have cash savings you can use for this?

I would use your DC funds as required to supplement your income until NRA and take the DB pension unreduced at 60. The DB TFLS can then be used to replenish your cash reserves if you've depleted your £50k DC pot.

Thank you. I do have some savings too but I think, as you say, it’s best to leave the CS pension until NRA of 60. Unfortunately, working for longer seems to be the best option too, so as not to deplete savings before I receive my CS pension. 

Catonthemoon

@Sunsh1ne54  The last sentence of your last post is of interest. I have a deferred CS pension which is being back- dated. That figure will be circa £144k. I’ve worked out the tax liability to be circa £48k as the gross amount pushes me into the 45% bracket. 

How can I reinvest my pension to avoid the higher rate of tax?

Many thanks, Cotm

Sunsh1ne54

Catonthemoon said:

@Sunsh1ne54  The last sentence of your last post is of interest. I have a deferred CS pension which is being back- dated. That figure will be circa £144k. I’ve worked out the tax liability to be circa £48k as the gross amount pushes me into the 45% bracket. 

How can I reinvest my pension to avoid the higher rate of tax?

Many thanks, Cotm

Hi Cotm, best to ask a financial adviser as these things are changing all the time.. best of luck 
I ended up drawing my CS pension on retirement at 60, nowhere near £144k so I didn’t need to look at avoiding higher tax rate. 

DRS1

@Catonthemoon Is @xylophone's post in this thread relevant to your situation?

Backdated pension not spread over tax years, taxed as one lump sum??? (McClod Remedy) — MoneySavingExpert Forum

Catonthemoon

@DRS1 Yes, possibly/very likely. Thank you.