Why you should take your pension at 55

af1963

Pretty much everything in the last flurry of posts is wrong.  Actuarial reductions do apply to people who are no longer contributing.  

(It wouldn't make sense any other way.  If it worked the way OP suggests for people who were not paying in, everyone would just stop contributing and leave work for a couple of months at age 54 so that they could avoid the age-55 reduction.)

So even if there was no inflation at all between 55 and 65, you'd still get a much larger pension at 65. Details depend on the scheme, but getting half as much at age 55 ( 5% reduction per year)  would not be unusual.

There's a germ of a valid argument in there -  if you take the money early, even at a reduced rate, you get 10 years of (lower) payments up front, and it takes a while for the higher payments that you'd get at 65 to pay out all the money you've missed for 10 years. But it does get there eventually, usually at about the median age that claimants will live to.

theoldmiser

Just to explain this even more clearly: about six months before I took my pension, my annual pension statement from my LGPS said that my 'Annual pension' was £11,500. I had stopped paying into that pension (because I had left that employer) two years before that.

When I actually took my pension six months later, it was £7,200, because the 'Annual Pension' figure of £11,500 which they put in my statement was based on me taking it when I was 67.

£7,200 x 1.05, ten times, gives £11,700 odd. In other words, if I waited until I was 67 to take my pension, it would be worth the equivalent of £7,200 in today's money, presuming an average of 5% inflation a year. That may indeed be too high a figure, I don't know.

But £7,200, plus 

£7,200 x 1.03 =  £7,416 plus

£7,416 x 1.03 = £7,638 plus

another eight times, comes to around £100,000. £100,000 which I categorically would have LOST if I hadn't started taking it at 55, because I am no longer paying into that pension.

theoldmiser

pterri said:

Absolutely, and it’s almost certainly a decision you cannot reverse? Currently pondering whether to take mine early at 57 or the schemes NRA at 60. 

Just work it out on a spreadsheet, to see if you'll be better off.

Exodi

My wife has a DB civil service alpha pension and I'm pretty sure taking the pension earlier than the standard pension age absolutely decimates the annual pay-outs. I think it was something extreme like losing nearly half the amount for taking it at the minimum retirement age, but I don't have the letter in front of me.

My view is pretty identical to Marcon's (sorry, didn't read the whole thread but I'm guessing the responses are similar).

theoldmiser

af1963 said:

Pretty much everything in the last flurry of posts is wrong.  Actuarial reductions do apply to people who are no longer contributing.  

(It wouldn't make sense any other way.  If it worked the way OP suggests for people who were not paying in, everyone would just stop contributing and leave work for a couple of months at age 54 so that they could avoid the age-55 reduction.)

So even if there was no inflation at all between 55 and 65, you'd still get a much larger pension at 65. Details depend on the scheme, but getting half as much at age 55 ( 5% reduction per year)  would not be unusual.

There's a germ of a valid argument in there -  if you take the money early, even at a reduced rate, you get 10 years of (lower) payments up front, and it takes a while for the higher payments that you'd get at 65 to pay out all the money you've missed for 10 years. But it does get there eventually, usually at about the median age that claimants will live to.

Are you talking about for pensions which are no longer being paid into at 55?

If I had continued working and paying in, my projected pension was something like £17,000 at 67 (though I expect this would continue to increase in the coming years). Since I stopped working for that employer, and stopped paying into that LGPS pension, my projected pension went down to £11,500 at 67.

Are you saying that all (or indeed any) pensions would give me the same amount at 67, whether I had stopped paying into them ten years ago, or carried on paying in until I was 67?

Re "Pretty much everything in the last flurry of posts is wrong.  Actuarial reductions do apply to people who are no longer contributing." When have I said that actuarial reductions do not apply to people who are no longer contributing?

Re "(It wouldn't make sense any other way.  If it worked the way OP suggests for people who were not paying in, everyone would just stop contributing and leave work for a couple of months at age 54 so that they could avoid the age-55 reduction.)"  When did I suggest that there was no age 55 reduction?

As usual, most of you are arguing against things I haven't actually said.

TheSpectator

You are failing to acknowledge that the £11,500 will also increase with inflation and that should someone wait till 67 and take that £11,500 increased by inflation they will recoup the amount you claim is lost should they live the average expected life span.

Not saying I 100% disagree, as I will be accessing my pension before 67 but it is a lot less black and white than you make out.

theoldmiser

I think there may be a few people who work for pensions companies on here, who don't want anybody to start taking out their pensions as soon as possible... Otherwise we would actually be getting some FIGURES to explain where I'm wrong...

Marcon

theoldmiser said:

I think there may be a few people who work for pensions companies on here, who don't want anybody to start taking out their pensions as soon as possible... Otherwise we would actually be getting some FIGURES to explain where I'm wrong...

Another hopelessly misguided post. Why on earth would 'people who work for pension companies' care? They aren't funding a DB scheme; the employer is.

You really are out of your depth. Stop digging!

theoldmiser

NoMore said:

I don't think its as simplistic as you say. 

You appear to be talking about DB pensions, how they increase in deferred status can be different perhaps some will have a better return before taking it than after. All will have actuarially reductions applied for taking them early, which is supposed to be cost neutral but its worth checking. Taking early while working can also cause you to pay more tax than necessary.

In short it will be down to the individuals available pensions, rules, tax position and plans that dictate this not their age. For some it will be right to take it at 55 for others it won't be.

"All will have actuarially reductions applied for taking them early, "

Where did I say that they didn't?

The tax you might have to pay is unlikely to be more than the extra pension you are taking from 55 each year, unless your pension is tiny and just takes you into a new tax bracket. Obviously in that case, don't take your pension from 55.

zagfles

theoldmiser said:

Just to explain this even more clearly: about six months before I took my pension, my annual pension statement from my LGPS said that my 'Annual pension' was £11,500. I had stopped paying into that pension (because I had left that employer) two years before that.

When I actually took my pension six months later, it was £7,200, because the 'Annual Pension' figure of £11,500 which they put in my statement was based on me taking it when I was 67.

£7,200 x 1.05, ten times, gives £11,700 odd. In other words, if I waited until I was 67 to take my pension, it would be worth the equivalent of £7,200 in today's money, presuming an average of 5% inflation a year. That may indeed be too high a figure, I don't know.

But £7,200, plus 

£7,200 x 1.03 =  £7,416 plus

£7,416 x 1.03 = £7,638 plus

another eight times, comes to around £100,000. £100,000 which I categorically would have LOST if I hadn't started taking it at 55, because I am no longer paying into that pension.

You really don't understand. That £11,500 would be increased with inflation in deferment. So it would have been £11,500 in today's money at 67. So £18,732 assuming 5% inflation for 10 years. Did you really think otherwise?

See Pensions increase 2024 :: LGPS  for the 2024 annual increase. There's one every year. 

"This means active pension accounts, deferred pensions and pensions in payment in the LGPS will increase by 6.7% in April 2024"