CS Alpha early retirement factors

NedS

In true MSE style, I've been studying the CS Alpha early retirement factors (yes, I know they are about to change) and am wondering if I have spotted an exploitable anomaly:

https://www.civilservicepensionscheme.org.uk/media/oislhmme/early-and-late-retirement-factors-and-guidance-alpha.pdf

For most NRA's the factor for taking your pension 1 month early is 0.998 (a drop of 0.002) which seems like an anomaly when the other monthly differences are typically 0.004-0.005.

If I had a £12,000 pension and took it one month early, reducing from £1000/month down to £998/month, without considering indexation it would take 998/2 = 499 months, or 41.58 years for the system to break even.

I think I'll be taking my pension 1 month early - every little helps!

chubsta

Nice to see someone else looking at every little aspect of their pension and working it out to pennies!

kassy64

You make it sound like a 'gain', its still a loss on what you would have if stayed on for that extra month (albeit tiny and less than any loss over 1 month). I retired from CS 2 years early and took a hit factor of 0.910. I had a decent pension though after 41 years service and its been worth every penny to be able to retire on a comfortable pension at 58 years old. Those extra 2 years have been worth every penny !

westv

My wife is currently planning to leave in 18 months (55) but, even after 38 years of service, her CS pension won't be anywhere near good enough for her to do that without my DC pension doing some of the early lifting.
The guaranteed inflation protected income will certainly help later on in retirement though.

kassy64

westv said:

My wife is currently planning to leave in 18 months (55) but, even after 38 years of service, her CS pension won't be anywhere near good enough for her to do that without my DC pension doing some of the early lifting.
The guaranteed inflation protected income will certainly help later on in retirement though.

I worked shifts for all of those 41 years which on average probably boosted my basic civil service salary by between 45-55% per annum. Having worked shifts for all that time was a major influence on my decision to pack in at 58 yo.

MoosMum

NedS said:

In true MSE style, I've been studying the CS Alpha early retirement factors (yes, I know they are about to change) and am wondering if I have spotted an exploitable anomaly:

https://www.civilservicepensionscheme.org.uk/media/oislhmme/early-and-late-retirement-factors-and-guidance-alpha.pdf

For most NRA's the factor for taking your pension 1 month early is 0.998 (a drop of 0.002) which seems like an anomaly when the other monthly differences are typically 0.004-0.005.

If I had a £12,000 pension and took it one month early, reducing from £1000/month down to £998/month, without considering indexation it would take 998/2 = 499 months, or 41.58 years for the system to break even.

I think I'll be taking my pension 1 month early - every little helps!

I have a deferred Alpha Pension, hanging on to see outcome of McCloud and how it will affect me as I'm already receiving Classic. I wasn't aware that there are changes being made to the early  retirement factors.Please could someone explain what these are? Many thanks.

NedS

kassy64 said:

You make it sound like a 'gain', its still a loss on what you would have if stayed on for that extra month (albeit tiny and less than any loss over 1 month). I retired from CS 2 years early and took a hit factor of 0.910. I had a decent pension though after 41 years service and its been worth every penny to be able to retire on a comfortable pension at 58 years old. Those extra 2 years have been worth every penny !

How so?

In my example, I would lose out on £2 per month by taking actuarial reduction from £1000/month down to £998/month BUT I've had an extra £998 payment by taking the pension one month early so I have an extra £998 in my pocket.

At a reduction of £2/month, it would take 998/2 = 499 months (or 41.5 years) to give back the £998 pounds I have received upfront. If I die before 108.5 years old, I'm in pocket (ignoring any effects of inflation and indexation)

michaels

NedS said:

kassy64 said:

You make it sound like a 'gain', its still a loss on what you would have if stayed on for that extra month (albeit tiny and less than any loss over 1 month). I retired from CS 2 years early and took a hit factor of 0.910. I had a decent pension though after 41 years service and its been worth every penny to be able to retire on a comfortable pension at 58 years old. Those extra 2 years have been worth every penny !

How so?

In my example, I would lose out on £2 per month by taking actuarial reduction from £1000/month down to £998/month BUT I've had an extra £998 payment by taking the pension one month early so I have an extra £998 in my pocket.

At a reduction of £2/month, it would take 998/2 = 499 months (or 41.5 years) to give back the £998 pounds I have received upfront. If I die before 108.5 years old, I'm in pocket (ignoring any effects of inflation and indexation)

Speculating that for some reason the first month is considered to be a half month reduction, the next one is then 1 month more (1.5 months total) etc?

kassy64

NedS said:

kassy64 said:

You make it sound like a 'gain', its still a loss on what you would have if stayed on for that extra month (albeit tiny and less than any loss over 1 month). I retired from CS 2 years early and took a hit factor of 0.910. I had a decent pension though after 41 years service and its been worth every penny to be able to retire on a comfortable pension at 58 years old. Those extra 2 years have been worth every penny !

How so?

In my example, I would lose out on £2 per month by taking actuarial reduction from £1000/month down to £998/month BUT I've had an extra £998 payment by taking the pension one month early so I have an extra £998 in my pocket.

At a reduction of £2/month, it would take 998/2 = 499 months (or 41.5 years) to give back the £998 pounds I have received upfront. If I die before 108.5 years old, I'm in pocket (ignoring any effects of inflation and indexation)

Not really, as your not accounting for your additional 1 months full salary you would have received by staying on.

Universidad

kassy64 said:

NedS said:

kassy64 said:

You make it sound like a 'gain', its still a loss on what you would have if stayed on for that extra month (albeit tiny and less than any loss over 1 month). I retired from CS 2 years early and took a hit factor of 0.910. I had a decent pension though after 41 years service and its been worth every penny to be able to retire on a comfortable pension at 58 years old. Those extra 2 years have been worth every penny !

How so?

In my example, I would lose out on £2 per month by taking actuarial reduction from £1000/month down to £998/month BUT I've had an extra £998 payment by taking the pension one month early so I have an extra £998 in my pocket.

At a reduction of £2/month, it would take 998/2 = 499 months (or 41.5 years) to give back the £998 pounds I have received upfront. If I die before 108.5 years old, I'm in pocket (ignoring any effects of inflation and indexation)

Not really, as your not accounting for your additional 1 months full salary you would have received by staying on.

An interesting point, shows how there can be very different perspectives on ones own finances.

I would say that you didn't lose out on a salary you didn't earn.

But, of course, you will have less money over the course of your lifetime if you retire early, and work less.

Then again, why not take on a second job and have even more money?

Nebulous2

Universidad said:

kassy64 said:

NedS said:

kassy64 said:

You make it sound like a 'gain', its still a loss on what you would have if stayed on for that extra month (albeit tiny and less than any loss over 1 month). I retired from CS 2 years early and took a hit factor of 0.910. I had a decent pension though after 41 years service and its been worth every penny to be able to retire on a comfortable pension at 58 years old. Those extra 2 years have been worth every penny !

How so?

In my example, I would lose out on £2 per month by taking actuarial reduction from £1000/month down to £998/month BUT I've had an extra £998 payment by taking the pension one month early so I have an extra £998 in my pocket.

At a reduction of £2/month, it would take 998/2 = 499 months (or 41.5 years) to give back the £998 pounds I have received upfront. If I die before 108.5 years old, I'm in pocket (ignoring any effects of inflation and indexation)

Not really, as your not accounting for your additional 1 months full salary you would have received by staying on.

An interesting point, shows how there can be very different perspectives on ones own finances.

I would say that you didn't lose out on a salary you didn't earn.

But, of course, you will have less money over the course of your lifetime if you retire early, and work less.

Then again, why not take on a second job and have even more money?

It's very possible to overthink things and go through all sorts of mental gymnastics. I was LGPS, not CS and had two NRAs, 65 and 67. At 67 I would have been better off than when working. I left at 59 and took the hit on both parts. 

I don't regret it - but do in some ways I do regard it as a double hit. I had an actuarial reduction, and the figure it was reduced from would have gone up with each additional year. 

I did take the second job, and find working 1 day a week suits me well. 

The different perspectives can occur within the same person.  We've been predominantly a single income household through the years. Since retiring I've been acutely aware that we are missing out on my wife's tax allowance. Then it occurred to me one day - that has been the case through most of our time together, yet I cannot recall it ever concerning me while I was working.  I'm not clear why that has changed.....