Section C lump sum options

[freespeech]

Hi,

Can anyone advise what LS options there are in section C please and the impact of taking these at 55 instead of NRA60 and 65. Can you roughly calculate potential lump sums and the impact on the wider pension?

[RobertT]

Section C members don't get a lump sum as standard but have the choice to give up some pension to get one – up to 25% of pot value.
Here's a simple method that will give you ballpark figures:

1. Work out rough NRA60 & NRA65 figures from those on your annual illustration.*
2. Take your NRA60 figures and multiply by 20 to give your NRA60 pot value.
3. Subtract early payment percentage.
4. Up to 25% of remaining amount can be taken tax free.
5. Divide what's left by 20 to give annual pension.

For example with a NRA60 of £8k per year:

8,000 x 20 = 160,000 – 25%(for taking at 55) = 120,000 – 25%(max lump sum) = 90,000 / 20 = 4,500.

So at 55 you would get a max lump sum = £30k and a pension = £4,500.
Leaving it until 60 would give you a max lump sum = £40k and a pension = £6k.

Do a similar calculation with your NRA65 figures, bearing in mind the lump sum will be funded, at least in part, by your DBCBS pot.

*The figures on the annual illustration are in final salary(up to 2008) and CSDB(2008-2018) form. But NRA60 relates to benefits up to 2010, while NRA65 is 2010 to 2018.

[freespeech]

Thank you Robert.

[TheStrangler]

When I look at those figures (I realise they're only ballpark) for taking pension 5 years early or waiting till 60..
For every year you work from 55 to 60 you're gaining £2,000 on the lump sum + £1,500 a year pension.
That doesn't sound that much of a carrot to me but others may disagree of course.

If you took 30k at 55 you'd be 10k down on the lump sum of 40k@60.

However with a pension of 8k - tax and ni would give you 6k clear per year x 5 years = 30k.
Minus the 10k you lost because you took lump at 55.
So by age 60 (if you'd taken pension @55) you'd be 20k up.
So you'd be up overall until the point where the £1,500 a year pension increase (which you would of had if you'd waited till age 60)is compensated for by the 20k, approximately 13 and a half years.

So taking pension at age 55, on the above figures, you'd be losing out from age 68/69 onwards?
That doesn't sound too bad to me as your state pension would of kicked in by that age anyway.

Or have I worked that out all wrong?
I know there are things like inflation etc but on the other hand you could have made up for that by using the lump sum wisely, but all things being equal..

[RobertT]

I'm not sure I agree 100% with your workings out, but I would agree that the gross break even age in my example would be age 68 or so – I've based it on taking the max lump sum in both cases!.
By my reckoning and based purely on gross pension income, by that age, taking the pension at 55 would have yielded a gross of £88,500, while taking it at 60 would be £88,000.

I haven't factored in income tax into the yearly pension figures, because that will depend on the individual to some degree. But taking your pension at 60 would potentially mean a lower overall tax bill of £2,000 straight away due to the larger tax free lump sum. That in turn would reduce the break even age down a year to 67.

Personally I would say that is still very young in retirement terms, and the fact you might be getting your state pension by then is irrelevant in my opinion.

The average life expectancy of a 65 year old man in the UK is currently about 83.5, while for women it's nearly 86(source) . So if you live to that age and based on my example figure above, taking your pension at 55 instead of 60 would mean you being worse off overall by about £24,750 for a man and £28,500 for a woman.
I haven't included any inflationary increases in those figures!

It was mentioned in a previous years RMSPS annual reports that male members live a little longer than the national average, while women hit the average!

Whether taking your pension early or not turns out to be a good move from a financial point of view will ultimately depend on how long you live, which is something most people don't know in advance.
It will also depend on whether you're a 'live for today' type or whether you take the long term view, but in general terms and based on averages, you'll get more overall by waiting until NRA.

[TheStrangler]

Thanks Robert, I appreciate you taking the time to reply to that.
I get completely the case you make and how past the breaking even point you are losing money overall.
I probably just look at it in a slightly different way in so much as I view it as getting to your state pension age at which point your losses from the Rm pension as it were, are somewhat compensated for by getting the state pension instead (thus getting 2 pensions by then that should do a lot of people I'd have thought!) though yes of course even the age you get that can be changed!
It's always interesting to hear peoples different take on this!

[freespeech]

In my particular case I worked out that taking my NRA60 pension at 55 would mean that I was worse off from age 70. This was calculated by multiplying my pension at 55 by 5 years and then dividing that by the difference in the pension for taking it early.

[mrcurve]

It might be worth bearing in mind that its almost always easier to earn money when your younger and working, at 70 you may really miss that income.

[stephen500]

Section C members don't get a lump sum as standard but have the choice to give up some pension to get one – up to 25% of pot value.
Here's a simple method that will give you ballpark figures:

1. Work out rough NRA60 & NRA65 figures from those on your annual illustration.*
2. Take your NRA60 figures and multiply by 20 to give your NRA60 pot value.
3. Subtract early payment percentage.
4. Up to 25% of remaining amount can be taken tax free.
5. Divide what's left by 20 to give annual pension.

For example with a NRA60 of £8k per year:

8,000 x 20 = 160,000 – 25%(for taking at 55) = 120,000 – 25%(max lump sum) = 90,000 / 20 = 4,500.

So at 55 you would get a max lump sum = £30k and a pension = £4,500.
Leaving it until 60 would give you a max lump sum = £40k and a pension = £6k.

Do a similar calculation with your NRA65 figures, bearing in mind the lump sum will be funded, at least in part, by your DBCBS pot.

*The figures on the annual illustration are in final salary(up to 2008) and CSDB(2008-2018) form. But NRA60 relates to benefits up to 2010, while NRA65 is 2010 to 2018.

Dear Robert T, some one at work has asked me to work out what lump sum they can get in Section C. I can use your formula above.
However do I use the pension supplement to find the pension pot and then the lump sum (that is lost when she gets the state pension) thanks.

[RobertT]

Section C members don't get a lump sum as standard but have the choice to give up some pension to get one – up to 25% of pot value.
Here's a simple method that will give you ballpark figures:

1. Work out rough NRA60 & NRA65 figures from those on your annual illustration.*
2. Take your NRA60 figures and multiply by 20 to give your NRA60 pot value.
3. Subtract early payment percentage.
4. Up to 25% of remaining amount can be taken tax free.
5. Divide what's left by 20 to give annual pension.

For example with a NRA60 of £8k per year:

8,000 x 20 = 160,000 – 25%(for taking at 55) = 120,000 – 25%(max lump sum) = 90,000 / 20 = 4,500.

So at 55 you would get a max lump sum = £30k and a pension = £4,500.
Leaving it until 60 would give you a max lump sum = £40k and a pension = £6k.

Do a similar calculation with your NRA65 figures, bearing in mind the lump sum will be funded, at least in part, by your DBCBS pot.

*The figures on the annual illustration are in final salary(up to 2008) and CSDB(2008-2018) form. But NRA60 relates to benefits up to 2010, while NRA65 is 2010 to 2018.

Dear Robert T, some one at work has asked me to work out what lump sum they can get in Section C. I can use your formula above.
However do I use the pension supplement to find the pension pot and then the lump sum (that is lost when she gets the state pension) thanks.

I believe that if you're leaving, or have already left RM, the supplement is included in the calculation. If you're still employed and plan to stay so after taking your pension, it isn't.

The supplement is paid from taking your RM pension until state pension age, as long as you've left RM employment.

[stephen500]

Section C members don't get a lump sum as standard but have the choice to give up some pension to get one – up to 25% of pot value.
Here's a simple method that will give you ballpark figures:

1. Work out rough NRA60 & NRA65 figures from those on your annual illustration.*
2. Take your NRA60 figures and multiply by 20 to give your NRA60 pot value.
3. Subtract early payment percentage.
4. Up to 25% of remaining amount can be taken tax free.
5. Divide what's left by 20 to give annual pension.

For example with a NRA60 of £8k per year:

8,000 x 20 = 160,000 – 25%(for taking at 55) = 120,000 – 25%(max lump sum) = 90,000 / 20 = 4,500.

So at 55 you would get a max lump sum = £30k and a pension = £4,500.
Leaving it until 60 would give you a max lump sum = £40k and a pension = £6k.

Do a similar calculation with your NRA65 figures, bearing in mind the lump sum will be funded, at least in part, by your DBCBS pot.

*The figures on the annual illustration are in final salary(up to 2008) and CSDB(2008-2018) form. But NRA60 relates to benefits up to 2010, while NRA65 is 2010 to 2018.

Dear Robert T, some one at work has asked me to work out what lump sum they can get in Section C. I can use your formula above.
However do I use the pension supplement to find the pension pot and then the lump sum (that is lost when she gets the state pension) thanks.

I believe that if you're leaving, or have already left RM, the supplement is included in the calculation. If you're still employed and plan to stay so after taking your pension, it isn't.

The supplement is paid from taking your RM pension until state pension age, as long as you've left RM employment.

Thanks