Taking BT Pension Early

Spenditnot · 22 September 2018 at 2:06PM

Hi, I'm looking for thoughts on the wisdom (or not!) of taking a BT DB pension early.

My wife is 56 and has a deferred BT pension (mostly from pre-2009 service) which she was planning on taking at age 60 when the early retirement reductions on the pre-2009 service end but reading the BT Pension Review thread (sorry, can't post the link as a new user) the reduced early retirement factors has caused us to consider taking it now.

According to the BT pensions portal the value at 60 would be approx. £13,400 (with a £40,200 lump sum).

If she takes it now (56 1/2) the value with the new reduction factors will be approx. £11,900 (£35,700 lump sum). So she loses £1,500 pa but gets it 3 1/2 years early.

The breakeven age taking the pension now looks to be around 87 but, as the extra £1,500 pa would all be taxable (she has no other income or pension other than SP due at 67) it could be as high as 91.

We've already early-retired and we don't really 'need' to take the BT pension now as I have a decent DB pension already in payment which we top-up from savings as necessary but, with the new BT retirement factors, it looks as though the better option might be to keep our savings for future use and live off the BT pension now.

I think I've got the sums right but are there other factors or complications that I've not considered?

Brynsam · 22 September 2018 at 2:38PM

Spenditnot wrote: »

According to the BT pensions portal the value at 60 would be approx. £13,400 (with a £40,200 lump sum).

If she takes it now (56 1/2) the value with the new reduction factors will be approx. £11,900 (£35,700 lump sum). So she loses £1,500 pa but gets it 3 1/2 years early.

It might help if you didn't think of it as 'losing'. She hasn't lost anything, because - as you recognise - her pension would be paid sooner than expected and for longer than if she waited until 60. Ignoring any increases, that's £11,900 x 3.5 = £41,650. Hopefully that is a more positive way to think about it!

Spenditnot · 22 September 2018 at 2:57PM

Hi Brynsam,

Poor choice of words on my part - we are not thinking of it as 'losing' at all and, if my sums are right, it would be a gain as we could maintain our spending without having to dip into savings.

As with all non-reversible decisions we just want to be as sure as possible there isn't some factor that we've not considered.

kidmugsy · 22 September 2018 at 2:57PM

Would taking it early reduce your eventual widower's pension?

Anyway, the annual pension would be reduced by about 3.2% for each year early. (You might like to check that with more precise arithmetic.) That seems a pretty good offer to me. You do see 4% and 5% mentioned commonly.

The fact that the pension is a neat fit with the Personal Allowance against income tax adds to the fun. She'd be getting an essentially tax-free income for an extra 3.5 years compared to waiting until 60, with ample opportunity to replenish your tax shelters (ISAs or SIPPs or what-have-you) using both the extra income and the early TFLS.

In your shoes I'm pretty confident I'd do it. Seize the day.

robin61 · 22 September 2018 at 3:05PM

For scheme B members the reduction was around 5.5% per annum and it's now around 3%.

I saw something from our Union just before I left to say that BT had committed to keep the new factors in place until at least June 2019. So there may be a risk that the reduction factors will change again. If they do I bet it won't be in our favour !

I had always planned to defer to age 60 but basically with the new reduction factors it was going to take a lot longer to make up the 2.5 years in pension payments that I would have been turning down. So for me the new deal changed my strategy. Giving me more money now to either spend or invest as I see fit.

robin61 · 22 September 2018 at 3:07PM

kidmugsy wrote: »

Would taking it early reduce your eventual widower's pension?

.

Yes it does.

Spenditnot · 22 September 2018 at 3:28PM

Would taking it early reduce your eventual widower's pension?

Yes, it would a little but I'm not concerned by that. My greater concern is the impact on the total income she will have if I'm first to pop-my-clogs. Although she would have a larger savings pot to draw on so it probably evens itself out in the long run.

I had always planned to defer to age 60 but basically with the new reduction factors it was going to take a lot longer to make up the 2.5 years in pension payments that I would have been turning down.

This was our plan too but we're reconsidering for the same reason

robin61 · 22 September 2018 at 3:42PM

Spenditnot wrote: »

This was our plan too but we're reconsidering for the same reason

If you are looking for a "gotcha" I don't believe there is one. I think you've understood the choice fine.

Spenditnot · 22 September 2018 at 3:55PM

robin61 wrote: »

If you are looking for a "gotcha" I don't believe there is one. I think you've understood the choice fine.

Thanks, a "gotcha" was exactly what I'm looking for. When I worked out the rough figures with the new reduction factors (and the Pension Portal confirmed them) it seemed a bit too much of an easy decision so I'm naturally suspicious of my ability to have not smelt the rat.

robin61 · 22 September 2018 at 4:06PM

Spenditnot wrote: »

Thanks, a "gotcha" was exactly what I'm looking for. When I worked out the rough figures with the new reduction factors (and the Pension Portal confirmed them) it seemed a bit too much of an easy decision so I'm naturally suspicious of my ability to have not smelt the rat.

There has been a bit going on over the last few months. BT announced that they wanted to cut 13,000 mainly management jobs. As far as I'm concerned these improved reduction rates were probably part of their strategy to persuade people to go.

Also they decided to close the defined benefit schemes and put all employees into the defined contribution scheme. There was a pension consultation with the unions and some sweeteners were offered. This was one of them.

I left last month with an enhanced paid leaver scheme and have been able to take the pension with a much lower reduction. My younger colleagues will not have come out of this as well as I have but as they say it's an ill wind...

Just be aware the offer might not be there forever.

Spenditnot · 22 September 2018 at 4:39PM

robin61 wrote: »

Just be aware the offer might not be there forever.

Thanks, we'll go through the figures again to be as certain as possible but it looks good so will probably make the jump fairly soon, especially as it suggests they need three months notice to sort out their admin.

Taking BT Pension Early

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