BT Pension Scheme Review: Help please.

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  • tigerspill
    tigerspill Posts: 764
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    Got this from BT Pensions today

    Section C Members

    Early payment of actuarially reduced pension after age 50

    Pre April 09 service:

    Retirement age 50 51 52 53 54 55 56 57 58 59 60
    % reduction 30.9 28.6 26.1 23.5 20.7 17.8 14.7 11.4 7.8 4.0 0.0


    Post April 09 service:

    Retirement age 50 51 52 53 54 55 56 57 58 59 60
    % reduction 41.9 40.1 38.2 36.2 34.1 31.8 29.4 26.9 24.3 21.4 18.4

    Retirement age 61 62 63 64 65
    %reduction 15.2 11.8 8.1 4.2 0.0
  • jennyjj
    jennyjj Posts: 346
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    skycatcher wrote: »
    It would be interesting to hear what your analysis is of the changes when you eventually get the quote. I'll be 59 in Nov this year and starting to seriously consider taking it then.
    Got my quote today for taking it at end of month of 59th birthday (Aug)
    I can confirm that the actuarial reduction on the pre 2009 contributions will be 3.4% and reduction on post 2009 service will be 19.5% which gives me an aggregate actuarial reduction of 4.2% or about £2,100 off my lump sum £560 per year off my pension after tax, in perpetuity.... But I get to pick up that extra year of pension and get to earn interest on that and on my tfls for a year.
    That compares to aggregate 6.22% reduction under the old actuarial reduction rates. So the new rates instantly enriched me by 2% of (TFLS + all future benefits). I'd have been pi55ed if I'd started drawing before June.
    For anyone with most of service pre 2009, it would seem that the New AR rates are a very significant boost.
    I'd actually estimated to within £100 what they would be quoting me as reduced annual pension.
    It seems a no-brainer for me to commence taking it now, under my circumstances.
    I still need to decide which of the options to take, but standard terms 3x TFLS seems to be the consensus.
    The conversion rate for buying extra lump sum seems slightly changed at extra lump sum = 21.2 x reduction in annual pension, where it used to be 20.56x

    This is scheme b, by the way.
  • robin61
    robin61 Posts: 677 Forumite
    jennyjj wrote: »
    Got my quote today for taking it at end of month of 59th birthday (Aug)
    I can confirm that the actuarial reduction on the pre 2009 contributions will be 3.4% and reduction on post 2009 service will be 19.5% which gives me an aggregate actuarial reduction of 4.2% or about £2,100 off my lump sum £560 per year off my pension after tax, in perpetuity.... But I get to pick up that extra year of pension and get to earn interest on that and on my tfls for a year.
    That compares to aggregate 6.22% reduction under the old actuarial reduction rates. So the new rates instantly enriched me by 2% of (TFLS + all future benefits). I'd have been pi55ed if I'd started drawing before June.
    For anyone with most of service pre 2009, it would seem that the New AR rates are a very significant boost.
    I'd actually estimated to within £100 what they would be quoting me as reduced annual pension.
    It seems a no-brainer for me to commence taking it now, under my circumstances.
    I still need to decide which of the options to take, but standard terms 3x TFLS seems to be the consensus.
    The conversion rate for buying extra lump sum seems slightly changed at extra lump sum = 21.2 x reduction in annual pension, where it used to be 20.56x

    This is scheme b, by the way.

    I'm coming around to taking the higher starting pension in return for a semi index linked option. Scheme B. I've assumed an average CPI of 3% - it will take 11 years for the fully index linked option to catch up and for total pension paid it will take 20- years for the fully index linked option to overtake.

    I've got a large AVC and the bigger starting pension means I can use it all and have no residual maximising my tax free lump sum. The smaller starting pension means I'll have to pay tax on the residual.

    I'll get my State pension at nearly 67.

    I'm thinking that this is a good way of smoothing out the amount of revenue I have in retirement. I think I'd like a bit more when I'm younger.
  • jennyjj
    jennyjj Posts: 346
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    edited 3 July 2018 at 10:28PM
    robin61 wrote: »
    I've assumed an average CPI of 3% - it will take 11 years for the fully index linked option to catch up and for total pension paid it will take 20- years for the fully index linked option to overtake.
    I never really try to model these cpi increases: Seems to me that any increase for cpi is not an increase in 'value': It's just an adjustment for the different 'currency value' we'll be working in at the end of that period of time. So long as cpi reasonably reflects inflation, then there is no 'increase' or 'catch-up' or 'overtake'. Having a portion of my pension not increasing with inflation is too risky for me to contemplate.
  • tigerspill
    tigerspill Posts: 764
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    jennyjj wrote: »
    I never really try to model these cpi increases: Seems to me that any increase for cpi is not an increase in 'value': It's just an adjustment for the different 'currency value' we'll be working in at the end of that period of time. So long as cpi reasonably reflects inflation, then there is no 'increase' or 'catch-up' or 'overtake'. Having a portion of my pension not increasing with inflation is too risky for me to contemplate.

    This is in essence exactly what I have done.
  • robin61
    robin61 Posts: 677 Forumite
    edited 5 July 2018 at 8:16AM
    jennyjj wrote: »
    I never really try to model these cpi increases: Seems to me that any increase for cpi is not an increase in 'value': It's just an adjustment for the different 'currency value' we'll be working in at the end of that period of time. So long as cpi reasonably reflects inflation, then there is no 'increase' or 'catch-up' or 'overtake'. Having a portion of my pension not increasing with inflation is too risky for me to contemplate.

    Agreed, but you have two choices one which is fully CPI linked so keeps up with CPI inflation and a second choice where the overall increases will be below CPI so diminishes in value.

    With option 1 you start with a lower pension but get bigger increases. With option 2 you start with a higher pension but get smaller increases. So it's about predicting at what stage in your retirement you are likely to be better off with option 1. If you have an idea of that you can make a more informed decision regarding whether you want more money early in retirement or more later (if you live that long).

    I found it a useful exercise and it changed my way of thinking once I had an idea where the crossover points were likely to be (making a reasonable assumption for future CPI rates). I'll probably be pushing 80 by the time I am better off and by then I'll have had my state pension for over a decade. I asked myself do I want a higher relative income at age 80 (ish) or age 58.

    I don't think there is a right or wrong answer to this it's all down to personal circumstances and what you are comfortable with.
  • jennyjj
    jennyjj Posts: 346
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    robin61 wrote: »
    Agreed,
    I'm glad you agree that I agree :)
    but you have two choices one which is fully CPI linked so keeps up with CPI inflation and a second choice where the overall increases will be below CPI so diminishes in value.
    ...
    I found it a useful exercise and it changed my way of thinking once I had an idea where the crossover points were likely to be (making a reasonable assumption for future CPI rates). I'll probably be pushing 80 by the time I am better off and by then I'll have had my state pension for over a decade. I asked myself do I want a higher relative income at age 80 (ish) or age 58.

    I don't think there is a right or wrong answer to this it's all down to personal circumstances and what you are comfortable with.

    While CPI is below about 3% It's no big deal. is it? And yes, if a higher starting pension is your goal, opt 2 is a good one. But I fear even a brief period of high >7% inflation could be very destructive if about a 1/3 of my pension was not inflation proofed.
  • robin61
    robin61 Posts: 677 Forumite
    jennyjj wrote: »
    I'm glad you agree that I agree :)


    While CPI is below about 3% It's no big deal. is it? And yes, if a higher starting pension is your goal, opt 2 is a good one. But I fear even a brief period of high >7% inflation could be very destructive if about a 1/3 of my pension was not inflation proofed.

    Well yes there is a risk involved as you rightly say if inflation is high then the crossover points will be reached more quickly. I guess like a lot of things it's also about individual attitude to risk.
  • skycatcher
    skycatcher Posts: 327
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    I'm sure the actuaries must have a spreadsheet to model all the options and the impact of inflation... Pity we don't have access! Why should it be a secret... It's our pension and do we not employ them via the trustees?
  • jennyjj
    jennyjj Posts: 346
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    skycatcher wrote: »
    I'm sure the actuaries must have a spreadsheet to model all the options and the impact of inflation... Pity we don't have access! Why should it be a secret... It's our pension and do we not employ them via the trustees?
    Good point. They probably fear that we will game the system by going on diets, joining a gym and looking both ways when crossing the road.
    :beer:
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