Deferred DB pension - my head is spinning!

QrizB

Sarahspangles said:

I understand some pensions will pay above CPI over an averaging period - it really shows how much variation there is with DBs.

Mine does this. The wording in the scheme booklet is something like "increasing by CPI capped at 5% pa compounded over the period of deferral". (That's not be the exact wording, it's from memory.)

optoutDB

I'm with mercer (aptia). The illustrator sometimes doesn't work for me, mostly it does work ( but I'm 56). So it could be IT problem, depending how many times you've tried.

mrklaw

Bit of a bump. Finally got through to someone that’d talk to me. They still refuse to give me a quote for retirement until I’m 55 - although technically they said they’d provide a quote up to a year in advance and I’m 55 in just less than a year so I thought I had them - but no. But they did provide more details of the scheme. Can someone help me dig through this to help estimate? 

Current revaluation - £17808 as of Jan 2025. Thats about what we estimated before so thats good. 

Revaluation: Statutory (RPI to 2010 and CPI thereafter and a 5% pa overall limit

for pre 06/04/09 service and 2.5% pa overall limit for post 05/04/09

For me thats about 50/50. 

Early retirement factors: 

Years before NRD Factor

0 1.000

1 0.961

2 0.924

3 0.890

4 0.858

5 0.827

6 0.799

7 0.772

8 0.747

9 0.723

10 0.700

The only missing part is how they calculate the early retirement factor above. I.e do they estimate forwards to normal retirement age and then apply the above multiplier? eg £23k at 65 *0.7 for taking at 55 = £16000. Or do they estimate forwards only to the planned retirement age (so around £18k for me and then also apply 0.7 so £12.6k)? The document doesn’t say how an example is done, but their email says this: 
“Also note that projections for your Final Salary class(DB) are calculated till your normal retirement date/age. To determine your benefits at a projected date your preserved benefits at your Date of Leaving (DOL) will be revalued to your current date using statutory revaluation rate based on complete years followed by an assumed rate for projection.” which at least to me suggests £23k (est) *0.7?

Dazed_and_C0nfused

mrklaw said:

Bit of a bump. Finally got through to someone that’d talk to me. They still refuse to give me a quote for retirement until I’m 55 - although technically they said they’d provide a quote up to a year in advance and I’m 55 in just less than a year so I thought I had them - but no. But they did provide more details of the scheme. Can someone help me dig through this to help estimate? 

Current revaluation - £17808 as of Jan 2025. Thats about what we estimated before so thats good. 

Revaluation: Statutory (RPI to 2010 and CPI thereafter and a 5% pa overall limit

for pre 06/04/09 service and 2.5% pa overall limit for post 05/04/09

For me thats about 50/50. 

Early retirement factors: 

Years before NRD Factor

0 1.000

1 0.961

2 0.924

3 0.890

4 0.858

5 0.827

6 0.799

7 0.772

8 0.747

9 0.723

10 0.700

The only missing part is how they calculate the early retirement factor above. I.e do they estimate forwards to normal retirement age and then apply the above multiplier? eg £23k at 65 *0.7 for taking at 55 = £16000. Or do they estimate forwards only to the planned retirement age (so around £18k for me and then also apply 0.7 so £12.6k)? The document doesn’t say how an example is done, but their email says this: 
“Also note that projections for your Final Salary class(DB) are calculated till your normal retirement date/age. To determine your benefits at a projected date your preserved benefits at your Date of Leaving (DOL) will be revalued to your current date using statutory revaluation rate based on complete years followed by an assumed rate for projection.” which at least to me suggests £23k (est) *0.7?

Are the early retirement factors not applied to the actual pension you have accrued at the point you choose to put the pension into payment 🤔

So if that was £17,808 and you putting it into payment exactly 3 years early you would be entitled to £17,808 x 0.89 = £15,849

mrklaw

Dazed_and_C0nfused said:

mrklaw said:

Bit of a bump. Finally got through to someone that’d talk to me. They still refuse to give me a quote for retirement until I’m 55 - although technically they said they’d provide a quote up to a year in advance and I’m 55 in just less than a year so I thought I had them - but no. But they did provide more details of the scheme. Can someone help me dig through this to help estimate? 

Current revaluation - £17808 as of Jan 2025. Thats about what we estimated before so thats good. 

Revaluation: Statutory (RPI to 2010 and CPI thereafter and a 5% pa overall limit

for pre 06/04/09 service and 2.5% pa overall limit for post 05/04/09

For me thats about 50/50. 

Early retirement factors: 

Years before NRD Factor

0 1.000

1 0.961

2 0.924

3 0.890

4 0.858

5 0.827

6 0.799

7 0.772

8 0.747

9 0.723

10 0.700

The only missing part is how they calculate the early retirement factor above. I.e do they estimate forwards to normal retirement age and then apply the above multiplier? eg £23k at 65 *0.7 for taking at 55 = £16000. Or do they estimate forwards only to the planned retirement age (so around £18k for me and then also apply 0.7 so £12.6k)? The document doesn’t say how an example is done, but their email says this: 
“Also note that projections for your Final Salary class(DB) are calculated till your normal retirement date/age. To determine your benefits at a projected date your preserved benefits at your Date of Leaving (DOL) will be revalued to your current date using statutory revaluation rate based on complete years followed by an assumed rate for projection.” which at least to me suggests £23k (est) *0.7?

Are the early retirement factors not applied to the actual pension you have accrued at the point you choose to put the pension into payment 🤔

So if that was £17,808 and you putting it into payment exactly 3 years early you would be entitled to £17,808 x 0.89 = £15,849

no because thats £17808 today. it will be increased with inflation (CPI or 2.5% whichever is lower) each year. So when you come to take it, they’ll revalue. It was £13700 when I left the scheme about 10 years ago. I suppose assuming the revalue is inflation based, then it would be effectively the same as 17808*0.89 in today’s buying power but the absolute amount would be higher. 

on that basis, if I ignore the revaluation it’d be something like 
at 55: 17808*0.7 =12,465.6  (wow autocorrect just filled that in…)
at 60: 17808*0.827=14,727.216  
at 65 : 17808*1=17,808  

in today’s money

Tommyjw

The unfortunate answer (because you'd need to ask again..) is that it depends.

Some Schemes will use an assumed inflation rate between your early retirement date and your normal retirement date and then apply the reduction, others (and I'd probably say most) won't and just apply the reduction to whatever the amount revalued to your early retirement date is. The paragraph included appears to imply it's the former , but i don't think it's particularly worded very well either way

mrklaw

Tommyjw said:

The unfortunate answer (because you'd need to ask again..) is that it depends.

Some Schemes will use an assumed inflation rate between your early retirement date and your normal retirement date and then apply the reduction, others (and I'd probably say most) won't and just apply the reduction to whatever the amount revalued to your early retirement date is. The paragraph included appears to imply it's the former , but i don't think it's particularly worded very well either way

yep. I can model based on the latter, hope its the former. this time next year I’ll be able to ask for an illustration for retiring at 55 so then I can try and square things up. Its still dumb they don’t allow illustrations until you’re already old enough to draw on it - gives no time for planning but at least I think I’m closer than I was. 

on the basis that it should be cost neutral though - usual break even around 80-85? I don’t think they’d project forward to 65 and then reduce because with only a 3.5% reduction per year you’d probably end up with too high an amount? 23k (projected forward) then reduced by 0.7 is 16100 which is barely less than the 17808 I’d get by waiting until 65 (in todays money). I think that’d be too skewed towarsd taking it early.

If I assume 2.5% inflation, then taking the lower figure - £12700 at 55, vs £23k at 65- the crossover is about 82 years old where the later pension gets to a higher cumulative number. The £16100 figure at 55, the later DB never catches up even by 100. So I’d guess they do the former (revalue baed on the date you’re taking and then reduce)

Phossy

82 is the right age. It's the average life expectancy.

optoutDB

I might be able to help you out with this. As I can both use the illustrator and ask for a quote. 

I've done a lot of break even analysis too, but need to do some more because....... 

I don't know if this has anything to do with their reluctance to let you use the illustrator, but the illustrator has been badly wrong (for my BAe pension) since Nov2023.  Today I spotted they have fixed it.  I've just lost about 11% predicted for all ages up to 60.  I was planning to take my pension ASAP in the hope that they gave me too much. Now I'm back to more neutral on the timing.