Actuary buy out (Civil Service Pension)

clanger88

Hi,

I’m in a civil service pension scheme with a NPA of 60 and if I retire early at 55 I will receive a lower pension. For example
At 60 I will receive £10,000 per year pension and if I retire at 55 it will be reduced to £8,000 per year. 

My understanding is the pension provider will provide you with the full pension (£10,000) at 55 years of age if you pay them an amount of cash calculated by them (Actuary buy out). Am I correct?

thanks

 

hugheskevi

That is correct.

The payment attracts tax relief, does not count toward Annual Allowance, but buying out 5 years of reduction may be very expensive and you may not have sufficient earnings to benefit from tax relief on the entire contribution.

Marcon

https://www.civilservicepensionscheme.org.uk/knowledge-centre/resources/actuarial-factors/

DullGreyGuy

As a no value add question... is "buy out" the term used for topping up the pension?

In my world of insurance a "buy out" is where an insurer takes over responsibility of paying pension by replacing the pension with an annuity on the same terms. Normally preceded by a "buy in" where a pension scheme buys insurance that broadly covers pension liabilities but the insurer pays to the scheme and the scheme pays on to the pensioners (they can be identical or fairly different - eg pension could be linked to RPI but the insurance is RPI max 8%, the scheme has to make up the shortfall)

hugheskevi

DullGreyGuy said:

As a no value add question... is "buy out" the term used for topping up the pension?

In my world of insurance a "buy out" is where an insurer takes over responsibility of paying pension by replacing the pension with an annuity on the same terms. Normally preceded by a "buy in" where a pension scheme buys insurance that broadly covers pension liabilities but the insurer pays to the scheme and the scheme pays on to the pensioners (they can be identical or fairly different - eg pension could be linked to RPI but the insurance is RPI max 8%, the scheme has to make up the shortfall)

In the Civil Service pension context, Buyout is the term for the amount required to remove the actuarial reduction applied for early payment. 

Whereas in the Teacher's scheme, Buyout is the term for paying extra to reduce the Normal Pension age.

michaels

Note that whilst you get tax relief on the buy out, odds are most of the pension you get from doing so will be taxable so only really worthwhile if you had something like an inheritance outside of an ISA wrapper.

What would be nice would be if you could buy out using a DC pot

clanger88

I’m getting a severance payment and anything over £30k will taxed. If I use the severance to buyout the actuary reduction the monies used is tax free

chubsta

I looked at this a while back and whilst I cannot actually remember the figures, it appeared that the cost of buying out the reduction was so big that it would take decades to get back so wasn't worth it, which kind of makes sense I suppose, they aren't going to give you something for nothing!