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2015 Pension ERRBO (Early Retirement Reduction Buy Out)

Discussion in 'Scotland - education news' started by Liviboy, Sep 14, 2015.

  1. Liviboy

    Liviboy Occasional commenter

    Just a bump due to needing to wait over 3 days on TES moderation.
  2. bigjimmy2

    bigjimmy2 Lead commenter

    Get independent advice pronto.

    Put at least some of your salary into, eg, an ISA. With ISAs and pensions you get tax relief and you need to check your individual circumstances before you decide where to put your hard-earned cash. Over the years it will mount up.

    You are buying time, remember, and no-one else will do it for you. A culture change for most of us I would imagine but well worth it in the long run - imagine going into work when you are 64, 67 or 68, it just does not sound attractive, does it?

    Apologies to anyone if this sounds patronising, no intention of that.
  3. Liviboy

    Liviboy Occasional commenter

    Thanks big jimmy.

    I intend to speak to an IFA as soon as possible, I just wondered if anybody else had opted for it? It would seem a relatively sensible idea until sound advice can be sought to apply for it. I can cancel at any time, however by not applying before 01/10 I lose the chance forever...

    I just find it interesting it hasn't been more publicised...you know?
  4. halfajack

    halfajack Occasional commenter

    A financial advisor has advised against it for several reasons. He thinks an additional private pension is a better option and that can be drawn if we retire early before drawing the SPPA pension at normal retirement age.
  5. Liviboy

    Liviboy Occasional commenter

    @halfajack - I am inclined to agree with the private pension option myself. However I'm going through a bit of a busy patch at the moment and doubt I'll be able to meet with a financial advisor before October.

    I called the SPPA to confirm that the ERRBO can be cancelled and this was confirmed so I think I'll choose it until I can give the time needed with an IFA and my own research. I can always cancel the ERRBO once a suitable alternative has been identified.

    I'm annoyed because I went through all the documents when the pension changed and didn't see the note that an election for the ERRBO had to be made within 6 months of joining. If I'd read that properly then I would have sorted all of this during the summer break!
  6. heldon

    heldon Occasional commenter

    of course the financial adviser would advise against it they wouldn't get the commission on the product that they could sell you. However a SIPP with a low cost trackerfrom a low cost provider could cover from stop date through to taking teachers pension. With the increase in personal allowance you could draw £15 tax free from 2020 without paying tax- you will get a tax uplift of 20% of money into the SIPP from the government. So every £1000 in government add £250 to it. I think many of us will be using this strategy to get out early. I will once my mortgage has been paid off that money will be invested. Can't work till I'm 68. As always do your own research .
  7. halfajack

    halfajack Occasional commenter

    I think info about the ERRBO was published after we were informed about changes and nobody seems to have thought to flag it up! I've filled in the quote from anyway.
  8. Roballs

    Roballs New commenter

    How are people working out their pensions? How will an unpromoted member of staff be affected? I have done some calculations and I don't think that the new pension arrangement is going to make a a big difference, so buying out the reduction doesn't seem to be obviously worthwhile.

    Example Ignoring inflation:

    40 Year old with Salary £34800 working from 24 - 60.

    Previous System Pension at 60 = 1/80 * 34,800 * 36 = ~£15700

    New Pension:

    Pension 1:

    1/80 * 34,800 * 16 = ~£6500

    Pension 2:

    1/57 * 34,800 * 20 = ~£12,200

    Actuarial Deductions (assuming pension age is 67 and actuarial reduction is 4.5% per year)

    7 * 4.5% *12,200 = ~£3800

    Pension 1 + Pension 2 - Reductions = ~£14,900.

    Difference = ~£800 per year.

    I happen to think that my actuarial reduction is on the high side, so the difference isn't so great.
  9. Liviboy

    Liviboy Occasional commenter

    For some reason the original message was not copied over to the new forum.

    Thanks to the brilliance of the Google cache, here is the original post:

    Hi all,
    Just wondering if any of you have considered the ERRBO option on the 2015 pension scheme? We only have 1 chance to sign-up and for most of us that means we need to make a decision by 1st October as we joined in April 2015 and it needs to be decided within 6 months of joining...
    I have a State Pension age of 68, in order to buy out my early retirement reduction I would need to pay an additional 2.13% pension contributions a year. (0.71% per year for 3 years reduction = 2.13%).
    I know our pensions are getting worse and worse but I really don't want to be working until I'm 68...
    Just wondered if anyone else had given it any thought?
  10. omega1

    omega1 New commenter

    Roballs - Big mistake in your calculation - previous pension you forgot lump sum -as well as £15700 pa you get 3 x this as a lump sum so you have got £47 100.

    Also new pension Pension 1 get 3 x £6500 lump sum £19500. Difference in lump sum is £27 600 PLUS £800 a year so be careful - it is a large difference and thats why we have been done!
  11. Roballs

    Roballs New commenter

    Omega, you are quite right, I have not included the lump sum, and there is a significant difference, but I don't believe that it makes a difference with respect to the OP's question. Buying out the early retirement reduction from 65 onward has no bearing on the size of the lump sum.

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