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Local Authority deferred pension option - seems odd!

zico
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Local Authority deferred pension option - seems odd!

#211336

Postby zico » March 29th, 2019, 4:54 pm

Mrs.Zico has received her pension options from her Local Authority which are :-
1. Take pension at 60 with minimum lump sum.
2. Take smaller pension at 60 with maximum lump sum.
3. Defer pension until 65 with minimum lump sum with just GMP of £1,500p.a. in the meantime.

As expected, options 1 & 2 cross-over around age 72.
However, Option 3 would require her to live for another 255 years before it becomes worthwhile!

Have I missed anything here? It seems highly unusual for an option to be so obviously unfavourable. It almost amounts to malpractice to provide it as an option, if some people might think that all 3 options must be similar.

parallellines
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Re: Local Authority deferred pension option - seems odd!

#211347

Postby parallellines » March 29th, 2019, 5:51 pm

I'm not a great expert on the LGPS , but I thought the normal retirement age was 65, and potentially higher than that for benefits built up since the 2014 changes.

So could it be a case of unusually attractive terms to take the benefits early, rather than unattractive deferral terms ?

As an aside, the average life expectancy of someone aged 60 already is in the high eighties, so "cross over at 72" (depending on how you've done the calculation) doesn't look great...

zico
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Re: Local Authority deferred pension option - seems odd!

#211422

Postby zico » March 30th, 2019, 12:56 am

Yes, normal pension age is 65 for the scheme, so massively attractive to take pension 5 years early. The By comparison, 72 year-old cross-over point is pretty standard, penalizing people in good health for taking bigger lump sums. Only worth doing that for people in really poor health at age 60.

totaltool
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Re: Local Authority deferred pension option - seems odd!

#211476

Postby totaltool » March 30th, 2019, 11:02 am

For a standard taxpayer the 12 years (between 72 and 60) is actually 15 years as the uplift in pension is taxed whilst any lump sum is not

zico
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Re: Local Authority deferred pension option - seems odd!

#211541

Postby zico » March 30th, 2019, 3:53 pm

I took account of the tax situation.

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Re: Local Authority deferred pension option - seems odd!

#211744

Postby mearnsfool » March 31st, 2019, 8:25 pm

Correct if the person is a non tax payer after their State and Local Authority pension is in payment.


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