Partial Retirement on a Civil Service Pension and Abatement

Save_Yoda

Be very sure the figures given to you in the modeller are correct and align with your ABS figures.  The modeller for me is overly optimistic I think…but I still await a response from CSP after 2 weeks!  

And mine is not a complicated situation. Just premium/alpha and retirement at 60 so premium figure in ABS and modeller should be pretty much the same.  They are not…modeller us 25% higher!  

hugheskevi

I found it a bit complicated but then, pensions are 😊

You don’t happen to provide 121 advice do you. Happy to DM, if so. 

Focus on your key decisions:

• When to take the pension (you want to take it ASAP)
• How much lump sum to take (unattractive to take anything more than standard amount when commencing pension at a young age)
• Which Remedy option to choose (should be clear from the options presented on the quote, Option A looks favourable from the limited results shown above, but the retirement quote will be different to the modeller results)
• How many hours you want to work - lifestyle choice, and trade-off of current and future income for leisure
  
• What proportion of pension to take - you wouldn't take an amount to incur abatement, you presumably wouldn't take less than the amount needed to maintain your income. So this is closely linked to how many hours you want to work.

One thing to remember is that it can be tempting at this point to ravage your pension by taking it early and with a big lump sum. You need to keep a close eye on maximising value, and being very clear on why you might be choosing options with lower value that better meet your circumstances, and whether it is a good deal or not.

You might also want to consider whether you might be compromising a paid exit offered to you at some future point - being part-time reduces your maximum entitlement.

I'm not an advisor. Pengage do seem the most accessible for guidance.

Or, could you just take Alpha with the added remedy period for your partial, if this is enough to cover the loss of your wages and leave Classic until you fully retire?

Although, reducing your pensionable pay would have an impact on your previous classic pension and lump sum I think.

Or take Classic only and leave alpha until you fully retire?

Reducing pensionable pay by going part-time wouldn't affect classic pension and lump sum.

But, whilst working the value of classic pension changes in line with pensionable earnings. Once in payment it increases by CPI. So if you think your earnings will go up faster than CPI that gives an incentive to hold off commencing the pension, whereas if earnings are going up below inflation then taking the pension is more attractive.

Alpha goes up in line with CPI whether working or receiving the pension, so is unaffected by this.

I just don’t really know what that amount should be and on principle, rightly or wrongly, I don’t want to lose money from my pension on abatement. 

You certainly don't want to be abated, there is no reason to incur that, so you would adjust other decisions to avoid this happening. 

What you would probably not do is make other decisions so as to give yourself more abatement headroom - that gets back to making decisions to ravage the pension for short-term gain.

I am currently on £78948 with the reduced salary at £63958. 

So after pension contribution but before bonus and any other taxable income, your taxable salary is £73,145. 

That means you are paying higher rate tax on £22,875, taking home £13,725 of it after tax.

From the modeller figures, it looks like you will be a basic rate taxpayer in the future, even after State Pension kicks in?

You could be in a great position of putting all higher rate income in an AVC or other Defined Contribution pension. After tax free lump sum and basic rate tax that would be £19,444. You could then use that DC pension to supplement your Defined Benefit Pension until State Pension age.

You are very likely to want to access your classic pension no later than age 60. You may want to consider how long you would need to work if you carry on full-time and put higher rate tax income into a DC pension. That gives you more earnings, more pension accrual, a lower actuarial reduction and better tax efficiency.

Alternatively, you could consider just working part-time such that your taxable earnings are £50,270 and not commencing your penson - subjecting yourself to higher rate tax now when you won't be a higher rate taxpayer in the future is very inefficient. The power of loss-aversion in relation to a reduced income is powerful, but that will happen at full retirement anyway, so it is important to look at the bigger picture and plan efficiently between now and expected date of death.