DB Pension Early Retirement Statement Value - One Year Until NRD - Expected Reduction?

JamesP8

I have recently requested and received an early retirement statement (one year before NRD).

Simultaneously, the scheme administrator has provided a further statement of the pension annual value as it would be in one year from now (at NRD).

I have calculated the reduction in taking the pension one year early and this amounts to almost 10% of the annual pension expected at NRD. 

I guess the size of early payment reduction may be specific to each scheme? Most grateful for views on this please? Many thanks.

Phossy

The scheme I am in has an annual actuarial reduction of 4%. I think 5% is more typical. The projection for your NRD may also include a annual 'inflation' rise too, so bear that in mind.

Albermarle

As above something around 4.5% is normal.

Pat38493

You should check whether the one for next year includes an uplift for forecasted inflation and if so how much.  Even so, 10% for just one year early seems excessive even if there is an inflation element in it.

Did you get any estimates for previous years and did those have unexpectedly large reductions?

I was under the impression that schemes that offer early retirement, are not "allowed" to punish the member for doing so i.e. they should try to calculate it so that the benefits you receive are roughly the same if you live to the average expected age.  10% reduction for one year is big.

Just to check - you are referring to the annual pension to be paid every year and not the PCLS lump sum - a reduction of 10% on the PCLS is slightly more believable.

Marcon

JamesP8 said:

I have recently requested and received an early retirement statement (one year before NRD).

Simultaneously, the scheme administrator has provided a further statement of the pension annual value as it would be in one year from now (at NRD).

I have calculated the reduction in taking the pension one year early and this amounts to almost 10% of the annual pension expected at NRD. 

I guess the size of early payment reduction may be specific to each scheme? Most grateful for views on this please? Many thanks.

As suggested above, by taking your pension a year early you 'lose' a year of revaluation in deferment (and depending on when you built up your DB pension, that could be 5% or more, especially if there's something called a Guaranteed Minimum Pension in there), and you have the starting level of your pension reduced (4% to 5% is fairly typical) to reflect the fact that it is payable sooner and for longer than if you'd taken it at your scheme's Normal Retirement Date.

JamesP8

Many thanks to all for your helpful comments. My calculations have been based just on an annual pension comparison, without PCLS. 
Looking deeper into the numbers I have noted that the pension from NRD includes an additional payment until State Pension age, whereas the early retirement figure did not, so re-comparing both sets of numbers at age 60 (to include the temporary additional payment for both options at that point) shows a roughly 6% difference.

Perhaps, as you have correctly pointed out, the NRD figure includes an element of forecasted inflation, in addition to the reduction for early retirement.

GMP does form an element of the pension and am told that at GMP age it will replace an element of the pension with a similar figure, although each will receive different increases.

Just for clarity I have requested details of the actuarial reduction, so maybe it will become clearer when received.

Albermarle

Just for clarity I have requested details of the actuarial reduction, so maybe it will become clearer when received.

That could well depend on who the scheme administrator is. Some are notoriously slow to respond to any requests, or respond at all. 

Kernowshep

Make sure you consider if it makes sense/if you are able to fund the "extra" year by other means to save losing the 6% (and extra years income).