So confused... planning to retire at 67, redundancy means I have to take my LGPS pension at 58

letsomebodyloveyou

Hi, I am being made redundant on 31 Aug at 58 years old. I had no intention of retiring as I simply cannot afford to. I have only been part of the LGPS for 7 years, no other pension. Apparently I have to start taking my pension, and therefore have to choose between the max conversion option of a lump sum and reduced annual pension, or take the standard unreduced annual pension (no lump sum). Neither amount is enough to live on, so I will have to find another job anyway.

I thought it would just mean finding another job, but the whole 'having to start taking my pension early' has thrown me as I was banking on that pension for when I actually planned to retire at 67. I am aware that I will have to pay tax on my annual pension when I get another job. The MoneyHelper site doesn't seem to help with what I understand is a defined benefit CARE pension.

My question is... am I better off taking the estimated reduced annual pension of £6k and investing the £40k lump sum now, or opting for the greater annual pension of £10k? It is only that high as my employer is putting an extra amount in due to making me redundant before my usual retirement age. My £3k redundancy will keep me off the streets for a little while until I find a new job. 

My limited understanding calculations suggest a break even with these two options at age 70, so if I live longer than 70 I am better off not taking a lump sum. Is that too simplistic?

Apologies if the answer is obvious - it is not obvious to me. Thank you for any thoughts  

cockerWalker

If your trade off is 40k or 4k extra per year for life, I'd suggest taking the extra 4k in the absence of other information. A guaranteed 10% per year is rather good, and 10k plus state pension (when you qualify) is a useful amount of money.

Marcon

letsomebodyloveyou said:

Hi, I am being made redundant on 31 Aug at 58 years old. I had no intention of retiring as I simply cannot afford to. I have only been part of the LGPS for 7 years, no other pension. Apparently I have to start taking my pension, and therefore have to choose between the max conversion option of a lump sum and reduced annual pension, or take the standard unreduced annual pension (no lump sum). Neither amount is enough to live on, so I will have to find another job anyway.

I thought it would just mean finding another job, but the whole 'having to start taking my pension early' has thrown me as I was banking on that pension for when I actually planned to retire at 67. I am aware that I will have to pay tax on my annual pension when I get another job. The MoneyHelper site doesn't seem to help with what I understand is a defined benefit CARE pension.

My question is... am I better off taking the estimated reduced annual pension of £6k and investing the £40k lump sum now, or opting for the greater annual pension of £10k? It is only that high as my employer is putting an extra amount in due to making me redundant before my usual retirement age. My £3k redundancy will keep me off the streets for a little while until I find a new job. 

My limited understanding calculations suggest a break even with these two options at age 70, so if I live longer than 70 I am better off not taking a lump sum. Is that too simplistic?

Apologies if the answer is obvious - it is not obvious to me. Thank you for any thoughts  

Have you recognised the huge benefit that your LGPS pension is being early (ie before the scheme's Normal Retirement Age) without any reduction for early payment? Most people would give their eye teeth for that sort of golden goodbye from a job.

You say you were 'banking on that pension for ...when you retire at 67' but the pension is still going to be there in its entirety - it isn't a defined contribution scheme, where taking cash out early depletes the pension pot. Once you begin to draw the LGPS pension, it will increase each year, so I think there's a bit of confusion somewhere.

letsomebodyloveyou

Thank you @Marcon - no I don't understand the huge benefit. I don't understand it at all, probably because I am devastated at losing my job that I have worked exceptionally long hours and studied really hard for, with no notice, and am also conscious of the potential difficulties of finding a new job at 58 in the current job market. I do not understand pensions, can get no sense from the Pension Fund or my employer, can't find any useful help on websites, and have no idea what makes a good Financial Adviser worth paying for, or one that will give guidance on LGPS. Hence asking my question.

If you could explain what you mean I would be very grateful. When my employer originally told me about the lump sum (strain) that they have to top up my pension pot with, they described it as what they would have paid into my pension had I not been redundant. I thought they meant 9 years of employers pension contributions, but can see online that that is not quite the case, but they could not give me any indication how that sum is actually worked out by the pension fund, apparently they are just told the figure to pay in. I have worked in schools my entire working life, just not paying into the LGPS until more recently as the pay was so low I couldn't afford to.

Like I said, apologies if my question is dim.

maman

I'd take the pension and start looking for another job immediately, preferably in the NHS. 

la531983

letsomebodyloveyou said:

Thank you @Marcon - no I don't understand the huge benefit.

Basically you are getting at least £36k (9 years @ 4k) before you should be doing under normal circumstances.  I say "at least" as it will go up by inflation each year.

letsomebodyloveyou

Thank you @cockerWalker - I rounded the figures up/down for ease. The estimated figures are £40k tax free lump sum or an additional £3100 in the annual pension so not quite 10%

letsomebodyloveyou

Thanks @maman - already looking  

letsomebodyloveyou

Marcon said:

letsomebodyloveyou said:

Hi, I am being made redundant on 31 Aug at 58 years old. I had no intention of retiring as I simply cannot afford to. I have only been part of the LGPS for 7 years, no other pension. Apparently I have to start taking my pension, and therefore have to choose between the max conversion option of a lump sum and reduced annual pension, or take the standard unreduced annual pension (no lump sum). Neither amount is enough to live on, so I will have to find another job anyway.

I thought it would just mean finding another job, but the whole 'having to start taking my pension early' has thrown me as I was banking on that pension for when I actually planned to retire at 67. I am aware that I will have to pay tax on my annual pension when I get another job. The MoneyHelper site doesn't seem to help with what I understand is a defined benefit CARE pension.

My question is... am I better off taking the estimated reduced annual pension of £6k and investing the £40k lump sum now, or opting for the greater annual pension of £10k? It is only that high as my employer is putting an extra amount in due to making me redundant before my usual retirement age. My £3k redundancy will keep me off the streets for a little while until I find a new job. 

My limited understanding calculations suggest a break even with these two options at age 70, so if I live longer than 70 I am better off not taking a lump sum. Is that too simplistic?

Apologies if the answer is obvious - it is not obvious to me. Thank you for any thoughts  

Have you recognised the huge benefit that your LGPS pension is being early (ie before the scheme's Normal Retirement Age) without any reduction for early payment? Most people would give their eye teeth for that sort of golden goodbye from a job.

You say you were 'banking on that pension for ...when you retire at 67' but the pension is still going to be there in its entirety - it isn't a defined contribution scheme, where taking cash out early depletes the pension pot. Once you begin to draw the LGPS pension, it will increase each year, so I think there's a bit of confusion somewhere.

Sorry @Marcon I missed this bit. A lot of confusion my end Are you saying the amount of pension I will get each year between now and 67 is made up from the extra amount my employer is putting in, and that the actual amount I have already built up in my pension will not have reduced by me having to take my pension early? 

daveyjp

I wouldn't worry about strain costs and how numbers are calculated or breaking even.  It makes no difference to your payment.

At 58 you could be receiving  this pension income for 40 years.  A £40k sum is tempting, but will need continual management to beat inflation over such a length of time.

The £10k a year is guaranteed to increase with inflation with no ongoing management or costs to achieve that and considering you only have 7 years service it is one hell of a deal.  Someone in LGPS who isn't made redundant would need many many years service to retire at 58 and achieve £10k a year due to the significant deductions for early retirement, something you aren't subject to.

gwynlas

When I was made redundant at 52 I knew that I had finished and was not ready for another job though i had planned to take my pension at 57 anyway as maximum would have been paid in. Resented thought of paying more tax 

Some people were very indignant at the term redundancy as they saw it as me being made redundant not my role.some debt through other circumstances

I was lucky and managed financially though did get into some debt through other circumstances until Statutory Pension age approaching

Outside of the lump sum which is your choice but might be useful to pay down mortgage think of your pension as allowing you to perhaps take on a lower paid role than you might have had to consider as I'm sure you have many transferable skills