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    • Eros1000
    • By Eros1000 8th Jul 18, 8:16 PM
    • 7Posts
    • 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
    • 3,064 Posts
    • 1,988 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
    • 11,085 Posts
    • 7,644 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
    • 9,852 Posts
    • 11,021 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
    • 814 Posts
    • 447 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
    • 359 Posts
    • 245 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
    • 1,287 Posts
    • 882 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
    • 3,525 Posts
    • 2,637 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
    • 1,287 Posts
    • 882 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
    • 749 Posts
    • 511 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
    • 7 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.
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