"Cashing in" a defined benefit pension

DRS1

katejo said:

DRS1 said:

Keep_pedalling said:

The normal pension age for the scheme is also likely to be 60 so you need to see how much your annual payments are being reduced by to take it early as that may also not be a good deal.

Or possibly 65 (so taking it 10 years early which would mean quite a big reduction)

OP Early retirement factors are not usually spelt out in your scheme booklet or even the rules so you will need to ask the administrator.  They do change from time to time so also worth asking if a change is coming (and what it will be if it is imminent and known).

The normal retirement age on my scheme has been gradually going up for several years and will be 67 from Easter next year. 

Hopefully your scheme has been thinking about the impact of that on your accrued benefits.  Maybe it is a DC scheme so not really a concern?

Marcon

DRS1 said:

katejo said:

DRS1 said:

Keep_pedalling said:

The normal pension age for the scheme is also likely to be 60 so you need to see how much your annual payments are being reduced by to take it early as that may also not be a good deal.

Or possibly 65 (so taking it 10 years early which would mean quite a big reduction)

OP Early retirement factors are not usually spelt out in your scheme booklet or even the rules so you will need to ask the administrator.  They do change from time to time so also worth asking if a change is coming (and what it will be if it is imminent and known).

The normal retirement age on my scheme has been gradually going up for several years and will be 67 from Easter next year. 

Hopefully your scheme has been thinking about the impact of that on your accrued benefits.  Maybe it is a DC scheme so not really a concern?

More likely to be a DB scheme where the NRA is tied to State Pension Age in some way. It doesn't normally impact on accrued benefits - but would increase the early retirement factor if someone wants to take them before the scheme's NRA.

katejo

DRS1 said:

katejo said:

DRS1 said:

Keep_pedalling said:

The normal pension age for the scheme is also likely to be 60 so you need to see how much your annual payments are being reduced by to take it early as that may also not be a good deal.

Or possibly 65 (so taking it 10 years early which would mean quite a big reduction)

OP Early retirement factors are not usually spelt out in your scheme booklet or even the rules so you will need to ask the administrator.  They do change from time to time so also worth asking if a change is coming (and what it will be if it is imminent and known).

The normal retirement age on my scheme has been gradually going up for several years and will be 67 from Easter next year. 

Hopefully your scheme has been thinking about the impact of that on your accrued benefits.  Maybe it is a DC scheme so not really a concern?

It's a DB scheme (SAUL) and I can access most of it without a large penalty because a large chunk of it was final salary and I continued paying into SAUL beyond my 60th birthday. If I retire before Easter 2027 (I meant 2027 above not next year), I won't be affected at all by the increase to 67). 

Cobbler_tone

Early reduction factors are not designed to be punitive. 

DRS1

Marcon said:

DRS1 said:

katejo said:

DRS1 said:

Keep_pedalling said:

The normal pension age for the scheme is also likely to be 60 so you need to see how much your annual payments are being reduced by to take it early as that may also not be a good deal.

Or possibly 65 (so taking it 10 years early which would mean quite a big reduction)

OP Early retirement factors are not usually spelt out in your scheme booklet or even the rules so you will need to ask the administrator.  They do change from time to time so also worth asking if a change is coming (and what it will be if it is imminent and known).

The normal retirement age on my scheme has been gradually going up for several years and will be 67 from Easter next year. 

Hopefully your scheme has been thinking about the impact of that on your accrued benefits.  Maybe it is a DC scheme so not really a concern?

More likely to be a DB scheme where the NRA is tied to State Pension Age in some way. It doesn't normally impact on accrued benefits - but would increase the early retirement factor if someone wants to take them before the scheme's NRA.

Thanks.  I was just thinking £1000 from 65 would be worth less than £1000 from 67. 

DRS1

katejo said:

DRS1 said:

katejo said:

DRS1 said:

Keep_pedalling said:

The normal pension age for the scheme is also likely to be 60 so you need to see how much your annual payments are being reduced by to take it early as that may also not be a good deal.

Or possibly 65 (so taking it 10 years early which would mean quite a big reduction)

OP Early retirement factors are not usually spelt out in your scheme booklet or even the rules so you will need to ask the administrator.  They do change from time to time so also worth asking if a change is coming (and what it will be if it is imminent and known).

The normal retirement age on my scheme has been gradually going up for several years and will be 67 from Easter next year. 

Hopefully your scheme has been thinking about the impact of that on your accrued benefits.  Maybe it is a DC scheme so not really a concern?

It's a DB scheme (SAUL) and I can access most of it without a large penalty because a large chunk of it was final salary and I continued paying into SAUL beyond my 60th birthday. If I retire before Easter 2027 (I meant 2027 above not next year), I won't be affected at all by the increase to 67). 

So it is not creeping up the same way the SPA is?

Marcon

DRS1 said:

Marcon said:

DRS1 said:

katejo said:

DRS1 said:

Keep_pedalling said:

The normal pension age for the scheme is also likely to be 60 so you need to see how much your annual payments are being reduced by to take it early as that may also not be a good deal.

Or possibly 65 (so taking it 10 years early which would mean quite a big reduction)

OP Early retirement factors are not usually spelt out in your scheme booklet or even the rules so you will need to ask the administrator.  They do change from time to time so also worth asking if a change is coming (and what it will be if it is imminent and known).

The normal retirement age on my scheme has been gradually going up for several years and will be 67 from Easter next year. 

Hopefully your scheme has been thinking about the impact of that on your accrued benefits.  Maybe it is a DC scheme so not really a concern?

More likely to be a DB scheme where the NRA is tied to State Pension Age in some way. It doesn't normally impact on accrued benefits - but would increase the early retirement factor if someone wants to take them before the scheme's NRA.

Thanks.  I was just thinking £1000 from 65 would be worth less than £1000 from 67. 

Indeed it would - which is why much would depend on when the benefits were accrued. A scheme can't normally do something which is detrimental to benefits already built up before a change to the rules is introduced. That's not the same thing as changing the NRA in accordance with existing rules. 

bjorn_toby_wilde

Cobbler_tone said:

Early reduction factors are not designed to be punitive. 

Not necessarily so, although it’s often quoted on here.

One of my pensions has two sets of ERFs; one generous version for those retiring from active service and a far less generous version for those who had left the company or (as in my case) been made redundant.

3.5% reduction per year for active service and 5% per year for deferred.

Presumably the intent was to encourage people to stay.

daveyjp

snowlaser said:

Something that seems to be missing in this discussion is - what money are you planning to live off in retirement: do you have lots of other pensions or other income?  If so then I can understand the thoughts behind wanting this pot to be more of an inheritance idea.  But if not, why are you are so concerned about what happens if you die young / about passing money on - what about how you will fund your own expenditure?

That goes back to working out financial priorities and how they can be met with DB pension.

If for example there is a desire to leave an inheritence just in case the worst happens, the obvious choice at 55 is a life insurance policy.  A 15 year policy for £50k of cover will cost a few pounds a month of that DB pension payment.

Marcon

bjorn_toby_wilde said:

Cobbler_tone said:

Early reduction factors are not designed to be punitive. 

Not necessarily so, although it’s often quoted on here.

One of my pensions has two sets of ERFs; one generous version for those retiring from active service and a far less generous version for those who had left the company or (as in my case) been made redundant.

3.5% reduction per year for active service and 5% per year for deferred.

Presumably the intent was to encourage people to stay.

I doubt many members spotted the distinction, let alone understood it and stayed around purely because they'd get a better early retirement offer if they asked to retire early.

A scheme has to offer 'fair value' in terms of ERF to all members. There's nothing unlawful about actives getting a better than 'cost neutral' deal (with the employer picking up the tab) - nor is a cost neutral deal punitive for deferreds.

Historically it's related to the way in which scheme funding is done. When the actuary carries out a valuation, active members are 'allowed for' on the basis that their benefits will increase in line with future salary increases. Funding for deferred members is on the basis of statutory revaluation (or whatever the scheme provides, if better than statutory). The employer contribution rate is set accordingly until the next triennial valuation.

Even if the scheme is closed to future accrual, and thus no longer has active members, it's entirely possible that this historic distinction lingered on. If trustee consent was needed to close the scheme to future accrual, the trustees might have used it as a bargaining chip, insisting that those in the employer's service (not necessarily pensionable service) at the time the member applied for early retirement would continue to have a better rate.