Taking a deferred pension early

The reduction to which you refer is known as an "actuarial reduction". It's unlikely that pension providers would publish details on their websites, and so you would need to ask them directly.

I'm in a similar position (with USS, a final salary scheme), and have been given to understand that in my case the reduction would likely be approximately 6% per year.

It wasn't made clear whether this is additive or multiplicative. In other words, supposing I brought my pension into payment at 60, whether I would get 70% or 73.4% of what I'd get if I waited until 65. But I dare say that in the blur of approximation, these two figures are near enough equal.

With a gap of 15 years, though, they wouldn't be!

It may help as guidance to note that a teacher retiring at 50 instead of

65 would get 0.494 of the full pension. refers.

Correction: 0.464

My (layman's) way of thinking is like this: they have an assumed life expectancy for males and females.

Say for me that figure was 75. Their potential outlay is therefore £8552 * 10 (date of death - age at retirement), i.e £85520.

If I retire at 50, the formula might be £85520 / (date of death - age of retirement) = £85520 / 25 = £3421 per year, i.e I'd lose £5100

-ish a year.

As I say, I'm a layman and I'm sure someone more knowledgeable will be along to correct my train of thought.

In broad terms you're quite right. The detail is more complicated though, for various reasons.

I was under the impression that the minimum age for receiving a pension was now 55, not 50.

Tim.

So was I but the scheme's online documentation says otherwise - I just hope they've updated it to keep up with changes in legislation.

It says something like if you've been in the scheme since pre-1993 you can draw it at 50, after that date it's 55.

The only real way to tell what you are going to get is to ask for a benefit forecast from your employers scheme for the early retirement at age 50 rather than the £8552 which would be payable at NPA (normal pension age). You don't say who your past employer is so that we can look online for any hint. By writing to them you will also be able to also test if their earliest age at 50 is allowable under the post April 2010 changes. As Tim says perhaps their online information is out of date?

In message , biggirlsblouse writes

Our Company scheme spelt out the early retirement penalty as a year by year percentage loss of 3%,. Age 60 - 100% Age 55 - 85% Age 50 - 70%

The Annual Statement of benefits was slightly out of date by the time we received it, so I produced a spreadsheet for my own particular details which gave me an estimate updated on a monthly basis.

It came in useful when they offered early retirement for anyone over 55 with a 40% enhancement on pension earned to date, and we had 5 months to decide. Needless to say it was a one-off event, (1991) and 12 months later there were straight redundancies.

From what I've heared, taking early (where allowable) is generally around -5% per year early.

I did a bit of googling and it looks like if you were entitled to take your pension at 50 without needing anyone elses permission or agreement (e.g. if you pension said something like "You make take this pension at any time from 50") then it's protected and you can still take it at 50. However, if it said something like "you may take this pension at any time from 50 with the agreement of the trustees" then it's not protected and you now have to wait to 55.

Which is interesting because at least part of my pension savings are definitely protected (unfortunately a rather small part) and another much larger part might be protected although it's going to take some digging through paper work for me to confirm that (and I'm pretty sure I'm going to have started it a month or two too late :-( )

Tim.

In my old scheme (british steel pension) the reduction is now 5% per year reduction before age 60, which means if the management gave consent for you to retire at 55 you now lose 25% of your pension (on a pro rata basis). Presently the rules of the scheme allow early retirement at 60 providing consent is obtained without reduction of pension. Unlike the LGPS where anyone with continous service before

2007 could insist that they retire without loss at 60, the british steel scheme is different in that respect. Prior to april 2010 the early retirement reduction was 3% per year and if the company needed people to leave they could offer it to anyone above age 50 (I was offered that in 2000 but could not afford to take it)... but prior to 2000 the reduction was 1.5% per year. All defined benefits schemes are reducing their exposure to longevity, and to that end have enhanced their lump sum commutation on the ratio of (for british steel) 13.5:1 (gain £13.50 for every £1 loss in pension). As I remember the LGPS is 12:1 and I am sure others are offering a poorer commutation ratio. I have read somewhere that if we all knew the value of our pension pots that the ratio should be nearer 19:1! This is why I said the the OP it depends which scheme he is in... although they are all defined benefit some are 80ths and a minority 60ths, with contribution rates from a scottish oil refinery (can't remember its name) where the employees contribute nothing, to a nominal 5%, british steels' is now 6% and gossip is that the LGPS is going to be 9% of gross pay. They know that 50% of children born today will live to over 100 years old and need to protect the scheme from the impact of that event.

In message , Gordon H wrote

Be careful in assuming that historic information is now valid. Many pension schemes have had a recent radical "re-think" of pension they will now give with early retirement. Where I work a lot of people retired this April because if they left it a month later they would have to work 2/3 years longer to get the same (final salary) reduced pension because of a change of conditions.

Many people are now joking (with some justification) that they will have to work to 70 rather than retiring early.

In message , water writes

Well, that was in 1991. Problem with my company pension is that the maximum indexing is 3% or RPI, probably to be reduced to CPI by permission of Mr Osborne, although it is a closed scheme now.

In message , Alan writes

That's why I pointed out the year of departure. We were extremely lucky to get that offer, which applied to anyone over 55. Some of the senior designers were most indignant, but I spent my time doing the calculations and leapt at the opportunity at age 58, as my wife was terminally ill, and died 4 years later. It was a struggle before I received the State Pension, but at least in those days I could switch the lump sum between instant accounts at 10%, mostly in her name. A bit like Osborne has done, but with £30G rather than £4B, and mine was earned rather than inherited. ;-)

I think my daughter will get caught up in that, at least until she is

66, so I can well appreciate the uncertainty that prevails today.

DMGT (I know, don't laugh)

Ah... we understand now your retiscence!