Question of cash value of pensions

[Postee2]

I am referring to section C pension here.
Am I correct in thinking that to get a rough cash valuation of the total pension, I multiply the monthly pensionable sum by 20 years ?
And Am I also correct in thinking that at 57 I could take 25% of that overall amount as a lump sum ?
I do understand that if you take the section C pension early, you lose 5% of its monthly amount per year.
BUT is that just because you are taking it out over a longer period of time. Does the overall "cash value" of the pension remain the same at 57, meaning that although the monthly drawdowns would be less, the overall "cash pot" is the same, and therefore the 25% (everything remaining equal) lump sum would be the same regardless of when you take it, either at 57 or 65 (apart from the face that if you left it invested for longer and kept paying into it it would grow more).
Hope that makes sense.

[RobertT]

The 20x multiple is merely an easy way of working out the theoretical cash value of your pension, and so how big your lump sum could be.

For example:

If your Age60 pension at 60 was £10,000 per year, that would have a theoretical cash value of £200,000, meaning a maximum lump sum of £50,000, and a reduced pension of £7,500.

But if you were to take it 3 years early, your Age 60(at 57) pension would be £8,500. So the cash value would equal £170,000, maximum lump sum £42,500 and reduced pension of £6,375.

Your RM pension has a Normal Retirement Age, or more specifically has two NRA's – 60 and 65!
Any decision to take them before NRA will result in a reduction.

There's no point in not taking them at NRA, because they will only grow with inflation, which they would in payment anyway.

You stopped paying into your Age60 pension in 2010 and your Age65 pension in 2018. Since then you've been building up a 'Cash Balance' to take as a lump sum predominantly with Age65.

[Postee2]

Sorry, I've just realised the latest statement doesn't actually give us a monthly figure, but an annual CSDB amount, and a pension supplement which we add together to get our annual pension ?

I realise the Cash Balance Fund is meant to be a guide to how much we may get as the cash lump sum.
But we need to know the Capita Statement figures to be able to calculate our full annual pension amount first ?

Still, and I right in assuming that the full "cash transfer value" could be roughly determined by calculating the total value of our "pot" over a 20 year period.

And that even if we take the 25% lump sum early, it doesn't deteriorate as a result of doing so (well not by 5% for each year anyway, obviously it would be lower than if we continue to pay into it for more years).

But everything remaining equal, the 25% doesn't deteriorate and neither does the total cash pot, it is just that the annual or monthly pension is less if you take it early, simply because you are taking it over a potentially longer period of time ?

Hope this makes sense.

And therefore also, would the cash balance amount also not deteriorate if you withdrew it at 55 or 57 rather than waiting until 65 ?

[Postee2]

So therefore Robert, we don't actually have the amount shown in our Cash Balance fund unless we wait until we are 65 before taking it ?
Is that right ?
Or should this be clarified with pension team ?

[RobertT]

Sorry, I've just realised the latest statement doesn't actually give us a monthly figure, but an annual CSDB amount, and a pension supplement which we add together to get our annual pension ?

Your RMPP statement provides your pension figures from 2012 onwards, so only includes 6 of the 8 years of Age65 benefits.
Plus a very small amount of Age60.

The supplement is added to the pension, but you only get the supplement if you're no longer a RM employee and then only until state pension age.

I realise the Cash Balance Fund is meant to be a guide to how much we may get as the cash lump sum.
But we need to know the Capita Statement figures to be able to calculate our full annual pension amount first ?

Yes, you need both statements to work out your total pension figures, which will be split into Age60 and Age65.

Still, and I right in assuming that the full "cash transfer value" could be roughly determined by calculating the total value of our "pot" over a 20 year period.

You can only transfer your RMPP(2012+) benefits as cash and then only into a DC pension scheme. The transfer value will be determined by the actuaries and isn't connected to the 20x multiple for working out your benefits.
It could be higher or lower than 20x!

Your pension will be paid out until you die, whenever that is. Then a spouses(if you have one) pension will be paid out until they die. So benefits could potentially be paid out for many years, or perhaps only a few.

Therefore in practical terms the 20x multiple is irrelevant to the actual value of your benefits, because they won't be known until you and your spouse die.

So therefore Robert, we don't actually have the amount shown in our Cash Balance fund unless we wait until we are 65 before taking it ?
Is that right ?
Or should this be clarified with pension team ?

Just read the RMPP website.
It says the cash balance will be reduced if you take it before 65.
Although based on experiences of people on this forum, the Cash Balance reduction is a lot less than 5% per year.

It's also worth noting that, it's possible to take some Cash Balance with Age60, unreduced. The PSC will provide options at the time of taking your benefits.

[Postee2]

Thanks for all of that..

Is the cash transfer Value affected in the same way as drawing down your pension early as Royal Mail pension ?

What I mean is if I chose to transfer it out early, does that 5% per year reduction rule apply to my cash transfer value ?

Thanks again

[RobertT]

A transfer value will be determined by the expected cost of your benefits to the scheme. So they will look at how long they think you might live and how much it will cost them.

Although there are other factors they look at aswell, such as interest rates. Basically when interest rates are high, CETV's are low and vice versa. Meaning transferring at the moment might not be too appealing.

As I've already said, you'll only be able to transfer your RMPP benefits, which is the 6 years of pension 2012-2018, plus the cash balance.
There's some info on the RMPP website: https://www.royalmailpensionplan.co.uk/ ... rring-out/

If the value of those benefits total over £30k, you'll need the approval of an IFA to transfer.
They will look at your overall financial situation and decide if it's the right thing for you to do.

I read somewhere that only about 10% of IFA's are actually qualified to deal with DB pension transfers and most probably won't agree because DB pensions provide valuable benefits for life, which DC schemes don't.