Taking your CPP early!!

[nodboy]

cpp thing 2.jpg

Having read through the CPP handbook online there is next to no infomation on taking it early it only says it will be reduced. With RMSPS/RMPP & Cash Balance my understanding is that if you take these early there will be a 5% reduction per year. So with the new CPP scheme what is the reduction??? Have I missed it in all the bunff?? Does anyone know? and where is it in writing???

[posted]

surely it's reduced by virtue of the fact the pot is smaller?


Let's pick a random 45year old person...

So say Pensionable pay is £30k
1/80th is £375
3/80th is £1125

Now multiply that by years contributing.

Scenario A
contributing 10 years retiring at age 55...
Annual Income is £375 x 10 yrs = £3750
Lump Sum is £1125 x 10 yrs = £11,250

Scenario B
Using same £30k pensionable pay (in reality you will have had pay increases) deciding to retire 10 years later at 65... so 20 years contribution
Annual income is £375 x 20 yrs = £7,500
Lump Sum is £1125 x 20 yrs = £22,500

I've not seen anywhere that it is actuarily reduced. they're just stating the obvious that you will likely get less because you've built up less.

Taking both scenarios into account and assume you live to age 90 (with no increases applied, for the sake of simplicity)
Taking pension at 55, by 90 you will have received annual income of £3750 x 35 yrs = £131250
Taking pension at 65, by 90 you will have received annual income of £7500 x 25 yrs = £187500

Bare in mind if you retire early (and don't take on any strenuous work etc) you're likely to live longer

All this could be incorrect so don't take as gospel but that's my working assumption for now.

[RobertT]

Take a look at page 54 of the Trust Deed, on the RMCPP website. It states that a pension taken early will cost the scheme the same as it would have done if it had been taken at NRA.

For example, in simple terms:

Bob builds up £3000 in pension over 10 years of membership and takes it at 67, and then lives to average age for a 67 year old man, which for this example is 82. Meaning a total of £45,000 is paid out in pension over 15 years.

Jeff also pays into the scheme for 10 years and accrues £3000 in pension, but takes his at 60. Assuming he's also expected to live to 82, he would get the same £45,000 in total pension but spread over 22 years. Meaning an income of £2,045 per year.

As life expectancy can vary depending on your age at any particular time and your gender, the perceived amount your pot is worth and the actual amount of any reduction is likely to be individual to you to some degree, and I don't think there's likely to be a set percentage reduction.
But my calculations suggest an average of around 4% per year would be a reasonable ballpark figure to go by to give a rough idea of the reductions expected.

[nodboy]

Take a look at page 54 of the Trust Deed, on the RMCPP website. It states that a pension taken early will cost the scheme the same as it would have done if it had been taken at NRA.

For example, in simple terms:

Bob builds up £3000 in pension over 10 years of membership and takes it at 67, and then lives to average age for a 67 year old man, which for this example is 82. Meaning a total of £45,000 is paid out in pension over 15 years.

Jeff also pays into the scheme for 10 years and accrues £3000 in pension, but takes his at 60. Assuming he's also expected to live to 82, he would get the same £45,000 in total pension but spread over 22 years. Meaning an income of £2,045 per year.

As life expectancy can vary depending on your age at any particular time and your gender, the perceived amount your pot is worth and the actual amount of any reduction is likely to be individual to you to some degree, and I don't think there's likely to be a set percentage reduction.
But my calculations suggest an average of around 4% per year would be a reasonable ballpark figure to go by to give a rough idea of the reductions expected.

Thanks Robert you a star!!!, page 54 is a bit of a head spin, I like the you explain it!!! Most people I speak to will not be with the business 67 therefore having some ball park knowledge is essential. Those who take it at 55 when they take nearly half the pot are in for a surprise........