DB pension ( early retirement )

Joey2013

Hi forum,

I have a small deferred DB pension which I am considering taking earlier than my NRD of 65. I am aged 56 so taking it 9 years early.

Some background. Since 1/4/2002 a GMP of £163.80 has been increasing at a FIXED 6.25% per annum and excess pension of £2051.12 increasing by CPI to a maximum of 5% per annum.
Both of these will increase by a FIXED 5% per annum once in payment.

To take my pension 9 years earlier than my NRD I have been quoted a full pension of £2,967 per annum or a tax free lump sum of £16,240 and a reduced pension of £2,436 per annum. I have requested from Aviva the factors that the actuaries have used to determine the reductions, as these were not provided in the quote. The tax free lump sum works out at a commutation factor of 30, and even though I don't need the TFLS, at a factor of 30 I think I should take it.

The latest estimate of my pension at NRD of 65 is full income of £5,994 or a TFLS  of £30,800 and a reduced pension of £4,620 per annum.

My questions are 

1) what would be the revalued amount of my pension as at 1/4/2024?

2) Does the reduction in the pension seem fair for 9 year early retirement?

3) Should I take the TFLS as it's at a generous commutation factor of 30?

Sorry for the long winded questions.  Any comments, suggestions and advice would be very welcome and appreciated.

TIA.

2nd_time_buyer

Compared to an equivalent annuity the commutation factor looks a little low to me. Perhaps, if you don't need the money now or you might be thinking about an annuity later, then that might sway things.

Tommyjw

Exact amounts will vary depending on your exact birthday & leave date but by my quick check i have your current pension value (before any reduction) about £4,500 . So thats a ~ a 33% reduction which for 9 years pretty standard really. 

Com Factor indeed looks really good but this will largely be because of the high annual increases well above what the standard minimum they have to give you is,which is pretty rare, so hard to comapred to a 'normal' DB Scheme.

What you should or shouldn't do would be up to your requirements for immediate funds, guaranteed 5% increase isn't something to ignore lightly. 

Joey2013

Thank you both for your comments.

Marcon

Tommyjw said:

Com Factor indeed looks really good but this will largely be because of the high annual increases well above what the standard minimum they have to give you is,which is pretty rare, so hard to comapred to a 'normal' DB Scheme.

Possibly it reflects not just the generous increases, but the fact OP is looking at taking their pension at the relatively young age of 56, so giving up far more 'future pension' than if they'd retired at the scheme's NRD?

OP, might be worth checking if - as I suspect - commutation factors are age related, so will drop from 30 to a lower figure as you get older.

Joey2013

Thanks Marcon, yes looking at the commutation factor at NRD it's down to about 22.

Brie

Obvious questions - which you don't need to answer here of course....

Do you need the money now?  Why do you need it now?  What does this do to your income tax situation?  How will it affect any income related benefits?  

Joey2013

No I don't need the money, but as it has a FIXED 5% increase per annum and I will be receiving it for longer it will probably be net neutral to taking it at 65. I am basic rate taxpayer. I don't get any benefits.I have rental income.

Joey2013

Just a follow up on this thread. I have key stage 4 kidney disease with function down to 16% and will most likely need dialisys in the not too distance future. I have not informed the pension company of this yet. Should I inform them to see if they enhance their pension quote. Also can someone please post the revaluation figures for uprating a deferd DB pension and how to calculate up to date value.

TIA

Marcon

Joey2013 said:

Just a follow up on this thread. I have key stage 4 kidney disease with function down to 16% and will most likely need dialisys in the not too distance future. I have not informed the pension company of this yet. Should I inform them to see if they enhance their pension quote. Also can someone please post the revaluation figures for uprating a deferd DB pension and how to calculate up to date value.

TIA

Check with the administrators of your DB scheme whether you would qualify for any sort of enhancement on the basis of ill health. Normally if someone has left 'active' membership and has a deferred pension, they don't qualify for 'better' benefits, but in some schemes they do, so definitely worth asking. They will also be able to provide an up to date value for your pension, especially if you explain your health position. Trying to do a DIY update isn't often a success...and you probably aren't feeling great, which is another reason to let someone else do the work.