Civil Service 'Classic' and early retirement (pre 55)

moo121

@Logan72 There are lump sum pension increase arrears, paid at 55.  See my post at:

https://forums.moneysavingexpert.com/discussion/comment/81756264#Comment_81756264

Logan72

moo121 said:

@Logan72 There are lump sum pension increase arrears, paid at 55.  See my post at:

https://forums.moneysavingexpert.com/discussion/comment/81756264#Comment_81756264

Thanks so much @moo121.  Complicated workings out for sure so I don't know what the arrears would be in my example but at least there are some!

Logan72

Hopefully this is still the best place for this as I resurrect my earlier query - it's now come to fruition and I may have misunderstood earlier, so really hope the experts can help me!

Classic deferred quote (I finally got one! 😊). Rough figures are that I left civil service employment 2016 with deferred classic pension of £10k. It's now worth £15k with the cpi increases. However I'm 53 and a half. What do I get now and what do I get at 55? I thought it was going to be £10k now and then all the past increases once I'm 55…but the quote is £8k.

Does early payment reduction really start at the £10k rather than a higher amount? There are no calculations/workings out shown on the quote - no final salary or the factor number related to age even.

Please help - it's significantly lower than what it was 10 years ago and appears to be the worst of all worlds calculation-wise. Would it be worth waiting 18 months to 55 for it to increase considerably?

hugheskevi

I left civil service employment 2016 with deferred classic pension of £10k

A deferred pension of £10,000 payable without reduction from age 60, and with an automatic lump sum of £30,000 (all figures as at 2016).

Does early payment reduction really start at the £10k rather than a higher amount?

Yes.

What do I get now and what do I get at 55? … It's now worth £15k with the cpi increases.

The actuarial reduction for claiming it at age 53.5 is around 24%

So you should get an initial award of approximately £7,600 p/a pension and a lump sum of around £27,000. That is all based on 2016 figures with the relevant actuarial reduction applied.

At age 55 your deferred award becomes £15,000 payable from age 60 (a bit more in practice, as there is another uprating or two before then). At that point your pension is increased to £11,415 (£15,000 with the same 24% actuarial reduction applied). The lump sum is increased in the same way too, and an additional amount paid reflecting the difference between the uplifted amount and the initial lump sum (about £13,000).

Would it be worth waiting 18 months to 55 for it to increase considerably?

At age 55 you would get about £12K pension and £41,500 lump sum after actuarial reduction. So about £500 more pension and £1,500 more lump sum from age 55. Between 53.5 and 55 you would have received about £11,400 of pension. Ignoring tax and uplifts between now and age 55, that is about £10,000 extra cash between 53.5 and 55 or £500 more pension p/a from age 55. That is a ratio of 20:1, and given age that probably isn't a great rate to exchange pension for more money, so from a neutral position it would probably be better waiting until 55. But it isn't shockingly bad, so probably worth considering your specific circumstances in detail.

I'd place a very heavy caveat on all the above that this is my understanding, but I can't claim to be 100% certain on this.

Logan72

https://forums.moneysavingexpert.com/discussion/comment/82083236#Comment_82083236

Thanks so much as always for your quick and precise replies. All really helps.

I was always aware of the 'no cpi increase between 50 and 55' but I thought that related to the amount in payment each year (ie. you make the extra sacrifice and get less for upto 5 years, until you're 55).

With it not being included in the initial calculation though, the effect of the early payment reduction is much greater than the stated penalty, so rather than 5ish% per year (and a maximum of 50% for 10 years early), it can be huge and really bares no relation overall to 'what your pension will be worth at 60 NPA'. It makes the precise reduction tables rather meaningless too as they all count down from 60 NPA (not from an amount 10, 15…20 years ago!)

You can't really get this info anywhere either - even google AI says the deferred amount should be revalued first before calculating the reduction, even when you're under 55.

Thanks @hugheskevi