Why you should take your pension at 55

Marcon

theoldmiser said:

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.

Of course the projection has gone down!

Look up the meaning of 'actuarially neutral'. You don't seem to have met the term.

Grumpy_chap

theoldmiser said:

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.

That seems to make sense to me.

If you continued working an extra 12 years (55 to 67), you would continue to accrue benefits by making additional ongoing contributions.  On that basis, the projection was £17k per year from age 67.

As it turns out, you stopped working at age 55 so did not make those additional 12 years' worth of contributions, so the projected pension from age 67 is lower (£11.5k).

It seems as simple as:
More money (years) in = more money out
Less money (years) in = less money out

Shadyocuk

You clearly lack even a basic understanding of either pensions or maths , please refrain from giving advice that could cause people to suffer large financial losses.

it is utterly irrelevant whether a pension is still being paid into or not.

if a pension is DC then why do you believe that the investments would not continue to grow after you have stopped paying?

if a pension is DB then everything depends on the DETAILS of the particular scheme, I am not a pension adviser but if a friend wanted my opinion then I would need to see the actual details of their scheme before offering an opinion.

Here is one simple example of actual figures taken from a DB scheme

DB taken at 55   £3359.98 PA if RPI was 2.5% then at 60 would be £3801.51 and by 65 £4301.06
yet if taken at 60 £5233.39 PA if RPI was 2.5% then at 65 would be £5921.10 
yet if taken at 65 £7326.75 PA 

The taken at 60 and 65 figures would actually be higher as they are quoted in today's money and would be subject to compounded RPI increases (in this case upto 5%),but even ignoring that in this case the pension if taken at 65 would  pay 70% more per year than it would have done if taken at age 55. Then you have to consider tax if someone was already earning more than the annual allowance then all of the reduced pension would have been liable for income tax.

theoldmiser

TheSpectator said:

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.

That is not correct. You're saying that the amount of pension I receive each year (£7,200) is the same as 3% of £11,500... I don't think so. Edit - sorry - I didn't read your post properly, ignore the previous sentence.

Here are the figures for you, even IF that £11.500 goes up with inflation: (here's where I got inflation figures for the past ten years: https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23) so I reckon 3% is likely)

At 3% inflation	1.03
55	£11,500.00
56	£11,845.00
57	£12,200.35
58	£12,566.36
59	£12,943.35
60	£13,331.65
61	£13,731.60
62	£14,143.55
63	£14,567.86
64	£15,004.89
65	£15,455.04
66	£15,918.69

Here's how much money I get because I started to take my pension at 55, rather than 67:

At 3% inflation	1.03
55	£7,200.00
56	£7,416.00
57	£7,638.48
58	£7,867.63
59	£8,103.66
60	£8,346.77
61	£8,597.18
62	£8,855.09
63	£9,120.74
64	£9,394.37
65	£9,676.20
66	£9,966.48
TOTAL	£102,182.61

I am working on this spreadsheet, to show how long it takes for the two totals to match - i.e. the total taken from age 55, and the total if taken age 67, bear with me.

So at 67, I would have already received £102,182.61 in pension, if there was 3% inflation.

Whereas, if I wait until 67 to start taking my pension, my pension will be (allegedly) £4,400 more per year, than if I had started taking it at 55. So allowing for inflation, it will take me - what - 15 to 20 years to get the extra £100,000 back. By which time I will be 82 to 87.  Still better to take it now than wait until later, I think.

theoldmiser

Marcon said:

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!

Thank you for explaining why I'm wrong so clearly. I particularly liked the figures you laid out, explaining it all.

theoldmiser

Exodi said:

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).

"decimates" means "to reduce by one tenth".

Does this include if you stop paying into it at 55, or is it the difference between if you stop paying in at 55 and take it at 55, or if you stop working at 67 and take it at 67? You do realise she will have paid in an extra 12 years, and this is exactly NOT what I am talking about.

af1963

 When have I said that actuarial reductions do not apply to people who are no longer contributing?

In your first post, you said, " I told them that it isn't going to be increasing by anything more than inflation each year".  That would only be true if there was no actuarial reduction.

In fact, it is increasing each year by :
a) inflation ( or whatever other measure is used to provide annual increases)
and
b) having one fewer year's actuarial reduction

Grumpy_chap

theoldmiser said:

That is not correct. You're saying that the amount of pension I receive each year (£7,200) is the same as 3% of £11,500... I don't think so.

Here are the figures for you, even IF that £11.500 goes up with inflation

I think you are conflating amounts expressed in "today's money" with amounts adjusted for inflation.

I think you are saying:
 - retire at age 55 and receive £7.2k per year in "today's money"
 - retire at age 67 and receive £11.5k per year in "today's money"

So, any comparisons can be assessed in "today's money" and can ignore inflation.
 - If you retire at age 55 and take £7.2k per year in "today's money", you will receive £230k by age 87
 - If you retire at age 67 and take £11.5k per year in "today's money", you will receive £230k by age 87
It all then becomes a judgement that you need to make about whether you will depart for the next world younger or older than age 87.
There are other factors such as whether you will suffer more income tax by taking the money younger.

I don't see any need to apply inflation to the above comparison as both annual payments will be similarly affected by inflations (except DB scheme in payment and in deferral do not always follow the same indices as each other - this can be another complication to consider).

Obviously, the above comments only refer to a DB scheme.  A DC scheme would have wholly different considerations in assessing the early / normal retirement age options - in particular, funds retained in a DC scheme may well grow and out perform the inflation, so making the future "tomorrow's money" higher in "today's money".

TheSpectator

Another point you have overlooked is the tax free lump sum in, say, a Civil Service Pension which is 3 x the pension. 

af1963

I am working on this spreadsheet, to show how long it takes for the two totals to match - i.e. the total taken from age 55, and the total if taken age 67, bear with me.

So at 67, I would have already received £102,182.61 in pension, if there was 3% inflation.

Whereas, if I wait until 67 to start taking my pension, my pension will be (allegedly) £4,400 more per year, than if I had started taking it at 55. So allowing for inflation, it will take me - what - 15 to 20 years to get the extra £100,000 back. By which time I will be 82 to 87.  Still better to take it now than wait until later, I think.

Yes, as I said in the earlier post, the amount you receive from the higher, later payments overtakes the amount from the lower, earlier payments at around your life expectancy ...  About half the people taking at 55 would do better, and half worse.

"Better now than later" is a valid consideration.  But also bear in mind that if you take it at 55 you may end up paying more tax on the payments because some of it is paid while you are still earning a wage