High/Low Pension Option
The high/low pension option aims to provide a steady level of income throughout retirement, taking broadly into account the State retirement pension rate for a single person. Your Standard Section pension would be increased through to your expected State Pension Age, as at the date of commencement of the Standard Section pension, and then reduced for the remainder of your retirement.
When is the option available?
If you are a member retiring at age 55, or over, with an immediate entitlement to a pension – other than on incapacity – you may be able to use this option. It does not apply to deferred pensions or if you take your pension on or after Normal Pension Age.
When should I apply for the option?
You should apply for the “high/low” pension option by completing the election form and sending it to the Pensions Office shortly before your retirement.
Will I automatically qualify for the option?
Not necessarily. For you to qualify for the high/low pension option, the Pensions Office needs to be able to predict that your pension at your expected State Pension Age, as at the date of commencement of the Standard Section pension, will be sufficient to allow for the pension reduction to take place.
What effect will taking the option have on my other pension benefits?
The high/low pension option may change your ability to take the full tax-free lump sum but does not affect your widow’s/widower’s/civil partner’s pension. It does not impact on any 5 year guarantee of your pension payable on death.
How will my Standard Section pension be reduced at my expected State Pension Age?
The value of the reduction is increased each year in line with price inflation therefore the actual reduction applied to your Standard Section pension will depend on price inflation over the period to you reaching State Pension Age. By way of illustration, the 2014/15 reduction is £5,252.04.
What happens if my actual State Pension Age changes?
If the law changes so that your actual State Pension Age turns out to be after your expected State Pension Age at the date of commencement of the Standard Section pension, the Trustee may modify your high/low option so that it continues in payment until your actual State Pension Age and the reduction applies thereafter. If the Trustee decides that your pension can be amended in this way, the reduction will be higher than it would otherwise be to reflect the longer period the high/low pension was in payment.
Who benefits from taking this option?
No-one can accurately predict who will benefit from taking the option. Your consideration of the option should depend on your own circumstances including whether it affects your position in regard to the Annual Allowance limit and your expectations about your likely State Pension Age.
Based on the Scheme Actuary’s assessment of the broad range of members who elect for this option, the Scheme should neither gain nor lose financially from providing the option, as it will be based on average life expectancy. Of course, no-one can predict whether an individual will gain/lose financially from taking the option, as it will depend on individual life spans. Pensioners who have shorter lives than the Scheme average receive proportionately more benefit from the option than pensioners who live longer than average.
How will taking the option affect my State benefits?
You should check with your local Jobcentre Plus office about how the high/low option may affect your entitlement to State benefits.
You should think carefully about whether the high/low option is appropriate for you.