Deferred pension with annual CPI increases - any reason not to take now?

itm2

My wife has a deferred pension with BP which becomes accessible when she turns 60 in May.  One of the benefits of the scheme is that pension payments are increased in line with CPI (up to 5%). The fund is worth around £60k. Our instinct is to take the full 25% TFLS and pension from May, rather than deferring or transferring out (e.g. into a flexible drawdown scheme).
We are fortunate enough that she is not reliant on this income for survival.
Is there any good reason why we might consider taking the full TFLS and pension as soon as they become available?

DRS1

Is it a defined benefit pension?

itm2

DRS1 said:

Is it a defined benefit pension?

I believe that it is, although not a final salary scheme AFAIK (i.e. the pension is not equivalent to the final salary)

GunJack

You won't normally get 25% tfls with a dB pensions. You may or may not get a pcls in keeping with the scheme rules, but the amount of this is normally defined within the scheme. Check your wife's scheme booklet carefully..

Marcon

itm2 said:

DRS1 said:

Is it a defined benefit pension?

I believe that it is, although not a final salary scheme AFAIK (i.e. the pension is not equivalent to the final salary)

It's a final salary scheme (which means the pension is linked to the years of pensionable service your wife had with BP and based on her salary at, or close to, the time she left 'active' membership).

itm2 said:

My wife has a deferred pension with BP which becomes accessible when she turns 60 in May.  One of the benefits of the scheme is that pension payments are increased in line with CPI (up to 5%). 

Is 60 your wife's Normal Retirement Age under the scheme, or will it be reduced for 'early payment' (ie she hasn't yet reached the scheme's NRA)?

There are plenty of other benefits of a final salary pension, not just the annual increases both in deferment and in payment. How would the scheme increase if she left it in deferment?

itm2 said:

Is there any good reason why we might consider taking the full TFLS and pension as soon as they become available?

Check how much tax free cash is available. It's 25% in a defined contribution scheme, but final salary schemes have their own rules.

itm2

I can confirm that my wife's Normal Retirement Age is 60 under this scheme. The Retirement Options document also confirmed that a Tax-free cash sum of £14,196 was available, which equates to roughly 25% of the transfer value (£56,700).
The situation re. deferment is not that clear to me - this is all it says:

This compares to the following if the pension is taken at the NRA (i.e. in 2 months time):
- Starting pension of £2.832.36
OR
- TFLS of £14,196 plus a starting pension of £2,129
- Survivor's pension (payable to spouse): £1,888 a year.

So I don't any benefit in deferment from this?

Marcon

Given the relatively modest numbers, and the fact your wife won't be reliant on just this pension, it might not be worth getting too fussed about it. If you have an immediate use for tax free cash, then taking the maximum could be sensible (pretty decent 'commutation' rate - the amount of annual pension given up in exchange for the cash lump sum); otherwise possibly take less cash and a commensurately higher pension.

singhini

Why is the differed pension less than the NRA pension (£2,796 versus £2,832). Doesn't make sense to me (take the pension later and get less money?????)


If i've understood this correctly, personally i would take the TFLS of £14,196 and have an annual pension of £2,129 (which is just £59 less a month).

You still have the option to put that TFLS into an ISA earning say 4% which would bring the £59 difference down to around £12

Yes i understand that is £12 a month worse off but i prefer the security of having 14,196 in my back pocket

Also the above does not take into account that at some point your wife will get her state pension and when added to this pension she may well end up paying income tax which would totally negate the £12 difference.

Just my personal opinion, i'm not saying your wife should follow this thinking, nor is this advise i'm giving (jsut ramblings of a drunk!). 

xylophone

Was your wife a member of the scheme between 6.4.78 and 5.4. 97?

If so, her statement of benefits on leaving service should show pre 88 GMP/post 88 GMP and excess.

What is shown in the scheme guide on increase in payment of  revalued GMP  for female post age 60?

DRS1

She is a deferred pensioner.  If she has a GMP isn't someone going to come along soon and say she has no choice but to take the pension (or at least the GMP element) at 60?

Marcon

DRS1 said:

She is a deferred pensioner.  If she has a GMP isn't someone going to come along soon and say she has no choice but to take the pension (or at least the GMP element) at 60?

No. Very few schemes include any such provision - and even if they do, it's hard to see how it could be enforced if the member doesn't provide the necessary bank details etc to put the pension into payment.