Early Payment of a Deferred Pension
The minimum age at which early payment of a deferred pension is allowed (other than on the grounds of Incapacity) is 55, with the exception of Deferred Pensioners whose period of Pensionable Service commenced prior to 6 April 2006, who retain the right to early payment from age 50 under legislation.
The reduction is not as straightforward as applying a percentage reduction back from age 65. In order to calculate the cost of early payment, a number of general assumptions have to be made by the Scheme Actuary, including:
- whether or not the member is likely to be married when they die;
- how long the member (and any spouse) would be expected to live;
- what the average rate of inflation would be throughout the member's (and any spouse's) future lifetime both before and after retirement, (this determines the rate of pension increases in the future); and
- the average rate of investment returns that any cash sum invested in the Scheme at the date of retirement would be expected to earn over the member's (and any spouse's) future lifetime.
In carrying out these calculations for Deferred Pensioners, the reduction is calculated by the Scheme Actuary on a "cost neutral" basis. This means that, taking all members in aggregate, the Scheme should make neither a gain nor a loss as a result of early payment experience.
On early payment, a Deferred Pensioner usually has the option to exchange part of their revalued pension entitlement for a tax-free lump sum.
It may also be possible to take a small pension as a lump sum. Further information is available here.