DB Pension estimate received - PCLS looks pretty neutral?

Pat38493

I received from Mercer an retirement estimate for my DB pension for putting it into payment on my 55th birthday.  I had also requested estimates for a couple of other ages, but all they sent was a retirement pack for age 55.

Good news is that the PCLS option now looks plausible - the commutation rate is 23.1 .  

DB pension at age 55 £16434
or £12754 plus PCLS 85026

After adjusting for the fact that my birthday is before the anniversary of my deferment date and looking at my manually calculated estimate, the pension without PCLS is within a couple of hundred pounds of what Mercer is saying so it seems like their estimate is at least plausible, although it's covered in bold type on the first page that basically says it might be wrong and it's not their problem if it changes later.

Plugging the scenario into my retirement plan in the Timeline software, what I found is that taking the PCLS gives a slightly better outcome, but it's only a percent or 2 - 94% success without PCLS and 96% with PCLS.

I guess I should interpret this with all the other uncertainties involved, that it's pretty much a coin toss whether to take the PCLS or not as the outcomes are so close together?  The upside is that the PCLS would almost pay off my whole mortgage so I would hardly have to take any TFC out of the DC funds to pay off the mortgage.

I highly doubt I will put this into payment immediately but at least I know have something to work with.  I am seriously considering whether to put it into payment though after the deferment anniversary in 2025.

jimi_man

The trouble with commutation rates is that they are highly age dependent. 23:1 on paper looks an ok rate and at age 65 it probably would be. At 55 though it looks considerably less attractive and it would be an easy decline for me. 

Mine was 22:1 when I was 51 and that was an even easier decline. 

(No health issues, or need for a large sum of money in my case). 

Pat38493

jimi_man said:

The trouble with commutation rates is that they are highly age dependent. 23:1 on paper looks an ok rate and at age 65 it probably would be. At 55 though it looks considerably less attractive and it would be an easy decline for me. 

Mine was 22:1 when I was 51 and that was an even easier decline. 

(No health issues, or need for a large sum of money in my case). 

So you would expect to get a more generous commutation rate at earlier retirement dates then?

Presumably that is because you are giving up more future increases for inflation?

On a separate note, is it normal that early retirement factors penalise you much more for the first few years earlier than later - so you lost a higher % of the pension for going one year early, than you would lose for the difference between 9 and 10 years earlier?

Pat38493

To update on my DB estimates, I now received by post from Mercer a retirement estimate for age 65, even though the quote for 55 retirement in January came by email with a password.  I have no idea why they send them at different times, one by post and one by email!

DB pension at 65 34456 or 25222 with 168146 PCLS.

Commutation 18.2

As compared to the retirement age 55, this would represent a 52% reduction in pension.

However - I suspect the £34456 has been inflated by 2.5%^10 as the pension fact sheet implies that this is done as part of the revaluation.  If I deflate it back again, it comes to £26749, which then makes the age 55 one a reduction of 39% which seems to be more in the normal ballpark, especially considering that about a 3rd of the pension has an NRA of 60 and not 65.