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    • Eros1000
    • By Eros1000 8th Jul 18, 8:16 PM
    • 8Posts
    • 0Thanks
    Eros1000
    Yearly reduction factor
    • #1
    • 8th Jul 18, 8:16 PM
    Yearly reduction factor 8th Jul 18 at 8:16 PM
    I have just recently taken early retirement as a result of voluntary redundancy.
    I have a company final salary pension scheme which is due to start on !st October 2019.
    If I wish I can take it a year early but this would mean a reduction of 7%
    From what Ive read a 3 to 4% reduction seems to be more the norm.

    Is 7% reasonable or is there just a wide variance between different pension providers?


    thanks
Page 1
    • TrickyDicky101
    • By TrickyDicky101 8th Jul 18, 8:25 PM
    • 3,190 Posts
    • 2,101 Thanks
    TrickyDicky101
    • #2
    • 8th Jul 18, 8:25 PM
    • #2
    • 8th Jul 18, 8:25 PM
    Does it matter whether or not it's reasonable? You either take it and accept the reduction or you don't. Reasonableness doesn't come into it.

    I would not take a 7% reduction on those terms.
    • kidmugsy
    • By kidmugsy 8th Jul 18, 8:30 PM
    • 12,059 Posts
    • 8,508 Thanks
    kidmugsy
    • #3
    • 8th Jul 18, 8:30 PM
    • #3
    • 8th Jul 18, 8:30 PM
    Good God, 7% less per annum for the rest of your life? It would be far cheaper just to borrow to see you through the year. Bung it on the mortgage.
    Free the dunston one next time too.
    • AnotherJoe
    • By AnotherJoe 8th Jul 18, 9:44 PM
    • 11,441 Posts
    • 13,211 Thanks
    AnotherJoe
    • #4
    • 8th Jul 18, 9:44 PM
    • #4
    • 8th Jul 18, 9:44 PM
    I wouldn't take 3 or 4% let alone 7%. At least it's an easy decision, you don't take it until it's due and fund the next year from other sources. Hopefully you have other savings that can come Into play ?
    • jamesperrett
    • By jamesperrett 9th Jul 18, 12:05 AM
    • 832 Posts
    • 460 Thanks
    jamesperrett
    • #5
    • 9th Jul 18, 12:05 AM
    • #5
    • 9th Jul 18, 12:05 AM
    From what Ive read a 3 to 4% reduction seems to be more the norm.
    Originally posted by Eros1000
    A 3-4% reduction per year you retire before NRA is the norm if you are retiring 8-10 years before NRA but, for the Civil Service Scheme at least, the annual reduction increases the nearer you are to NRA. 7% is still high though.
    • Marcon
    • By Marcon 9th Jul 18, 12:26 AM
    • 541 Posts
    • 404 Thanks
    Marcon
    • #6
    • 9th Jul 18, 12:26 AM
    • #6
    • 9th Jul 18, 12:26 AM
    I have just recently taken early retirement as a result of voluntary redundancy.
    I have a company final salary pension scheme which is due to start on !st October 2019.
    If I wish I can take it a year early but this would mean a reduction of 7%
    From what Ive read a 3 to 4% reduction seems to be more the norm.

    Is 7% reasonable or is there just a wide variance between different pension providers?
    Originally posted by Eros1000
    Pension 'providers' don't offer final salary schemes; trustees do (in the private sector - public sector schemes have managers if they are unfunded). Yes, there is a variance between individual schemes, but 7% looks unusually high. Is the scheme heavily in deficit?

    I'd check with the trustees (or their third party administrators) if that really is the figure and, if the answer is yes, ask when the next review of factors is due.
    • Brynsam
    • By Brynsam 9th Jul 18, 8:22 AM
    • 1,676 Posts
    • 1,232 Thanks
    Brynsam
    • #7
    • 9th Jul 18, 8:22 AM
    • #7
    • 9th Jul 18, 8:22 AM
    Does it matter whether or not it's reasonable? You either take it and accept the reduction or you don't. Reasonableness doesn't come into it.
    Originally posted by TrickyDicky101
    Actually reasonableness does come into it.

    OP, who is the scheme actuary/which firm do they work for? The Summary Funding Statement you receive each year will tell you, or ask the pension scheme administrators.
    Last edited by Brynsam; 09-07-2018 at 10:14 AM.
    • marlot
    • By marlot 9th Jul 18, 9:55 AM
    • 3,704 Posts
    • 2,831 Thanks
    marlot
    • #8
    • 9th Jul 18, 9:55 AM
    • #8
    • 9th Jul 18, 9:55 AM
    I wouldn't take 3 or 4% let alone 7%....
    Originally posted by AnotherJoe
    Why not? It comes to about the same amount.

    Let's say the pension is 10k a year, and the person might be in retirement for 25 years from NRA.
    Taking it at NRA gives 10k x 25 = 250k.

    With a 4% reduction, 9600 x 26 years gives 249600. A 3% reduction x 26 years = 252,200.

    If the OP is no longer working, but the pension takes him into 20% or 40% tax, there are also some modest tax savings.

    But back to the OPs 7% - that seems too high.
    • Brynsam
    • By Brynsam 9th Jul 18, 10:16 AM
    • 1,676 Posts
    • 1,232 Thanks
    Brynsam
    • #9
    • 9th Jul 18, 10:16 AM
    • #9
    • 9th Jul 18, 10:16 AM
    A 3-4% reduction per year you retire before NRA is the norm if you are retiring 8-10 years before NRA but, for the Civil Service Scheme at least, the annual reduction increases the nearer you are to NRA. 7% is still high though.
    Originally posted by jamesperrett
    The reverse is generally true in private sector schemes. The further away you are from retirement, the harder it is to predict 'the future' - so the annual reduction factor often increases if you are more than 5 years away from the scheme's retirement age.
    • Dox
    • By Dox 9th Jul 18, 10:21 AM
    • 1,002 Posts
    • 788 Thanks
    Dox
    A 3-4% reduction per year you retire before NRA is the norm if you are retiring 8-10 years before NRA but, for the Civil Service Scheme at least, the annual reduction increases the nearer you are to NRA. 7% is still high though.
    Originally posted by jamesperrett
    I've just looked at the Alpha retirement factors and that doesn't seem to hold true.
  • jamesd
    If I wish I can take it a year early but this would mean a reduction of 7%
    Originally posted by Eros1000
    That's the highest reduction rate I remember seeing.

    It's not necessarily unreasonable because it's related to the life expectancy of the total membership at the normal pension age. If that's say ten years, getting it one year early adds a lot to the costs and implies a bigger reduction than for a scheme where it's 25 years.

    But you aren't the average and you can know how your life expectancy looks. If it's only a few years, transferring out is likely to be best. If it's longer than average, waiting is likely to be best. There may be a point where taking the 7% drop for life looks like a good move but before accepting that you should compare it to the income you could get by transferring and buying an enhanced annuity.

    An office worker in a scheme with mainly manual workers is likely to find that 7% is ridiculously bad for them but it might not be horrible for a more typical member.

    7% is a huge reduction and you shouldn't just take that unless you have no other way to live or find that you can't get a better outcome by transferring. Borrowing on 30% credit cards is dirt cheap compared to a 7% cut for life.
    • Eros1000
    • By Eros1000 9th Jul 18, 6:48 PM
    • 8 Posts
    • 0 Thanks
    Eros1000
    Thanks for all the comments folks.

    To answer a few points -
    Aon Hewitt is the pension provider.
    I understand my (former) company pension fund is in good shape.
    As I received a reasonable voluntary redundancy package I would have no problem in surviving until 1st October 2019.
    The reduced figure I have been offered is 14832.

    I would be taxed at the 20% rate (or however the Scottish tax system works it out).

    I will put it on a new thread as I need time to type it up but as I have also been offered what looks similar to a PIE scheme.
    Last edited by Eros1000; 09-07-2018 at 7:00 PM.
  • jamesd
    There's a discussion of PIE at Pension increase exchange advice that you might find useful. Your life expectancy is the key factor to consider. If it's low, PIE can be a good deal but transferring out is likely to be far better. Older still and PIE can look better for those who can't get more from an enhanced annuity who don't want to use investments, in this range inflation is a significant factor.
    • Turpinr
    • By Turpinr 31st Jul 18, 3:17 PM
    • 17 Posts
    • 10 Thanks
    Turpinr
    I was given a reduction factor of 63.1% to finish 5 years early from my deferred pension.
    At 61 its 69.2% and at 62 its 75.9.
    If it had been 4%/year I'd have finished by now
    • kidmugsy
    • By kidmugsy 31st Jul 18, 3:35 PM
    • 12,059 Posts
    • 8,508 Thanks
    kidmugsy
    I was given a reduction factor of 63.1% to finish 5 years early from my deferred pension.
    Originally posted by Turpinr
    That's hard to credit. Are you sure it's an actuarial reduction? Could it be a combination of the effect of five years of active membership forgone, and actuarial reduction?

    At 61 its 69.2% and at 62 its 75.9.
    Originally posted by Turpinr
    Ah - you don't mean a reduction factor at all. I suspect you mean, on the contrary, that if you stopped work 5 years early you'd have received 63.1% of the pension that you would otherwise have received at 65, and so on.

    If you find that remark hard to follow, translate it into your mother tongue and see if it's clear then.
    Free the dunston one next time too.
    • Turpinr
    • By Turpinr 31st Jul 18, 4:00 PM
    • 17 Posts
    • 10 Thanks
    Turpinr
    This is how it reads, Early retirement reduction factor 0.67600.
    Which is age 60 and 9 months.
    With a commutation figure of 14.5.

    I was expecting 4 or 5%/year so a bit disappointed
    • kidmugsy
    • By kidmugsy 31st Jul 18, 7:23 PM
    • 12,059 Posts
    • 8,508 Thanks
    kidmugsy
    This is how it reads, Early retirement reduction factor 0.67600.
    Which is age 60 and 9 months.
    With a commutation figure of 14.5.
    Originally posted by Turpinr
    I suspect they've misled you - it's their command of English that's at fault, not yours.

    There are two reasons to get a smaller pension at age 60/9 rather than 65/0. (i) You will have been an active member for fewer years. (ii) You will be subject to "actuarial reduction" because you will be drawing your pension for longer - approximately 4 years 3 months longer.

    Maybe what they meant was that the reduction because of both effects together will be 32.4%, leaving you with 67.6%.

    When people talk about "actuarial reduction" they are referring only to effect (ii). That's because effect (i) is dead easy to calculate. For example, if you are in a scheme that would pay you, say, forty eightieths of your final salary if you retired at 65, then if you retire five years early you obviously will get at most thirty-five eightieths.
    The bit you can't calculate yourself without extra information supplied by the scheme is effect (ii). Your particular scheme has to tell you its own actuarial reduction.

    I suggest you tell us (a) whether your scheme works on sixtieths, or eightieths, or whatever; and (b) how many years membership you will have accumulated at age 65. (I'm assuming that age 65 is the scheme retirement age. If I'm wrong, say so.)
    Free the dunston one next time too.
    • Turpinr
    • By Turpinr 31st Jul 18, 7:45 PM
    • 17 Posts
    • 10 Thanks
    Turpinr
    The scheme is actually two final salaries, one of which was transferred in.
    I'd paid into the two for at most 22 (16&6) years. I dont know whether they were 1/60th or 1/80th
    In June i asked for an early finish quote and a CETV with a view to early retirement, but it won't be just yet.
    • Turpinr
    • By Turpinr 31st Jul 18, 7:49 PM
    • 17 Posts
    • 10 Thanks
    Turpinr
    PS. Yes normal retirement age is 65
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