Pension Increase Exchange

Samuelsjourney

Hi, my deferred DB pension is offering the above. Looking into it in a bit more detail it looks to me that my pre 1997 benefits would not receive % uplifts as per the scheme rules for a higher initial pension at commencement. I would still receive inflationary uplifts on the post 1997 pension built up. There is also the addition of TF cash. In my case ranging from MAX 103k to  MIN 10k at age 58 (next year for myself). Im not interested in taking the TF cash, however the higher starting pension may appeal. The pre 1997 benefits are about one third of my full pension accrued. Just looking for thoughts. I realise there is a crossover point as the years progress. Thanks.

Marcon

Samuelsjourney said:

Hi, my deferred DB pension is offering the above. Looking into it in a bit more detail it looks to me that my pre 1997 benefits would not receive % uplifts as per the scheme rules for a higher initial pension at commencement. I would still receive inflationary uplifts on the post 1997 pension built up. There is also the addition of TF cash. In my case ranging from MAX 103k to  MIN 10k at age 58 (next year for myself). Im not interested in taking the TF cash, however the higher starting pension may appeal. The pre 1997 benefits are about one third of my full pension accrued. Just looking for thoughts. I realise there is a crossover point as the years progress. Thanks.

This is quite a significant decision, or could be if the DB pension is the major plank of your retirement provision, or indicate whether you have other savings. You don't give any figures apart from TFC (which you've said you are not interested in taking), so it's finger in the wind stuff when reading your post!

What's your attitude to risk? What's longevity like in your immediate family/do you have any health issues yourself?

Are you being offered access to (free) financial advice? If so, starting there would be helpful, even if you choose to disregard what you're told.

This isn't a particularly recent article, but still might make helpful generic reading: https://www.thisismoney.co.uk/money/pensions/article-5913849/Should-PIE-Pension-Increase-Exchange-Steve-Webb-replies.html

Samuelsjourney

Marcon, thanks for your reply. I have a SIPP which is currently around 175k. Current work pension (Nest 5k). The PIE offer is £22k at 58. Non PIE offer is 19.6k. Savings (5k). I plan on working till 62 (58 at present). My salary is circa 25k. Looking at my SP i have qualified for the full SP at 67 years old. Im a homeowner no mortgage, no other debt. No health conditions, average mortality in the family mid 80s. SIPP i have estimated to be 200k at 62 years of age and NEST work pension 12k at 62 years of age.

Marcon

Sounds like you've got a fair amount of flexibility in terms of what you take when, and the subsequent impact on your tax position (especially if you don't intend to take tax free cash from your DB pension). It doesn't look as if you will be either a non-taxpayer or a higher rate taxpayer (with the caveat we don't yet know what the new government will do on tax...), so not sure the tax position is going to sway the argument either way.

I guess it's a case of whether you have a need for more cash sooner rather than later - and if you have borrowings to pay off, that might be a consideration. Given you don't have any debts, that too isn't a persuasive argument!

It really does seem to be a case of 'take your pick' - sorry not to offer any deeply useful comments!

Gary1984

As a trainee actuary I used to help price these things up. Just be aware it's being offered to you by the scheme in order to save them money, not to give you greater flexibility or anything like that.

kempiejon

Gary1984 said:

As a trainee actuary I used to help price these things up. Just be aware it's being offered to you by the scheme in order to save them money, not to give you greater flexibility or anything like that.

I looked at taking mine early at a reduced rate. My income would be reduced by a few percent for each year I took before the normal age. I assumed it was cost neutral. It was between 2% - 5% per year.
In the end no reduction. Which one saves the company the most money, early or at the schemes intended date? Did they benefit from me choosing to wait, if I'd known I would have looked at collecting earlier.

Samuelsjourney

Some decisions to make after reading the useful (thank you) Steve Webb article to. 

Gary1984

kempiejon said:

Gary1984 said:

As a trainee actuary I used to help price these things up. Just be aware it's being offered to you by the scheme in order to save them money, not to give you greater flexibility or anything like that.

I looked at taking mine early at a reduced rate. My income would be reduced by a few percent for each year I took before the normal age. I assumed it was cost neutral. It was between 2% - 5% per year.
In the end no reduction. Which one saves the company the most money, early or at the schemes intended date? Did they benefit from me choosing to wait, if I'd known I would have looked at collecting earlier.

Early retirement factors are calculated to be cost neutral so no issue there. However, the pension increase exchanges I worked on were specifically designed to reduce the scheme liabilities, otherwise the trustees wouldn't pay the outlay to the actuaries to do the calculations needed or expense of writing to the members and paying for legal advice etc.

kempiejon

Gary1984 said:

kempiejon said:

Gary1984 said:

As a trainee actuary I used to help price these things up. Just be aware it's being offered to you by the scheme in order to save them money, not to give you greater flexibility or anything like that.

I looked at taking mine early at a reduced rate. My income would be reduced by a few percent for each year I took before the normal age. I assumed it was cost neutral. It was between 2% - 5% per year.
In the end no reduction. Which one saves the company the most money, early or at the schemes intended date? Did they benefit from me choosing to wait, if I'd known I would have looked at collecting earlier.

Early retirement factors are calculated to be cost neutral so no issue there. However, the pension increase exchanges I worked on were specifically designed to reduce the scheme liabilities, otherwise the trustees wouldn't pay the outlay to the actuaries to do the calculations needed or expense of writing to the members and paying for legal advice etc.

So if I was altruistic enough to want the pension to have minimised costs what time frame reduces overheads for my scheme? Should I have taken my payment early, at normal age or delaying it for an enhanced rate so that all members could benefit from the reduction in liabilities?

Marcon

kempiejon said:

Gary1984 said:

kempiejon said:

Gary1984 said:

As a trainee actuary I used to help price these things up. Just be aware it's being offered to you by the scheme in order to save them money, not to give you greater flexibility or anything like that.

I looked at taking mine early at a reduced rate. My income would be reduced by a few percent for each year I took before the normal age. I assumed it was cost neutral. It was between 2% - 5% per year.
In the end no reduction. Which one saves the company the most money, early or at the schemes intended date? Did they benefit from me choosing to wait, if I'd known I would have looked at collecting earlier.

Early retirement factors are calculated to be cost neutral so no issue there. However, the pension increase exchanges I worked on were specifically designed to reduce the scheme liabilities, otherwise the trustees wouldn't pay the outlay to the actuaries to do the calculations needed or expense of writing to the members and paying for legal advice etc.

So if I was altruistic enough to want the pension to have minimised costs what time frame reduces overheads for my scheme? Should I have taken my payment early, at normal age or delaying it for an enhanced rate so that all members could benefit from the reduction in liabilities?

You're confusing two things: retirement age (factors are calculated with the intention of being cost neutral at any age, whether retiring early, at NRA or after NRA); and the PIE exercise which triggered this thread.

You're also asking a question which is unanswerable - depends on when you actually die, and also rates of inflation.

FIREmenow

@Samuelsjourney what is the indexation on the pre-1997 part that you would be giving up?