WEBVTT 00:00:00.000 --> 00:00:02.940 The state pension reduction could significantly 00:00:02.940 --> 00:00:06.019 reduce your income in retirement once you start 00:00:06.019 --> 00:00:09.220 taking your pension. How do I know? Well, I've 00:00:09.220 --> 00:00:12.339 just put in my notice on my job with a view to 00:00:12.339 --> 00:00:16.059 retiring. My pension statements have come through 00:00:16.059 --> 00:00:20.320 with significant reductions from the point I 00:00:20.320 --> 00:00:24.829 get my state pension. Now, if you're due to receive 00:00:24.829 --> 00:00:28.109 a defined benefit pension of retirement, then 00:00:28.109 --> 00:00:31.190 I'd advise that you do check to see whether your 00:00:31.190 --> 00:00:34.369 scheme will apply a state pension reduction. 00:00:34.909 --> 00:00:36.869 So what is one? What's a state pension reduction? 00:00:37.469 --> 00:00:41.170 Well, it's also known as a clawback and it's 00:00:41.170 --> 00:00:44.189 applied to some private sector defined benefit 00:00:44.189 --> 00:00:47.750 pensions, also known as final salary pensions 00:00:47.750 --> 00:00:50.829 at state pension age. It's usually the case that 00:00:50.880 --> 00:00:54.299 you'll take your defined benefit pensions before 00:00:54.299 --> 00:00:57.299 your state pension age, a bit like I have. So 00:00:57.299 --> 00:00:59.600 you'll start off receiving a certain amount from 00:00:59.600 --> 00:01:02.560 the scheme. And if the scheme does operate a 00:01:02.560 --> 00:01:06.000 state pension reduction like mine, then when 00:01:06.000 --> 00:01:10.359 you reach state retirement pension age, the scheme 00:01:10.359 --> 00:01:13.959 will reduce your pension by a proportion of the 00:01:13.959 --> 00:01:16.980 state pension that you start to receive. For 00:01:16.980 --> 00:01:21.150 example, I start to receive my defined pension 00:01:21.150 --> 00:01:26.209 of the age of 55. Well, now, the income I receive 00:01:26.209 --> 00:01:29.430 from the scheme is going to be £8 ,860 per year. 00:01:29.650 --> 00:01:32.670 And at 65, there'll be a state pension reduction 00:01:32.670 --> 00:01:36.890 of £1 ,840, which means going forward, I'll only 00:01:36.890 --> 00:01:40.269 get £7 ,020 per year. I mean I've been entitled 00:01:40.269 --> 00:01:43.189 to the state pension but my defined benefit pension 00:01:43.189 --> 00:01:47.030 has been cut significantly. Now this type of 00:01:47.030 --> 00:01:49.890 practice is perfectly legal and it's used by 00:01:49.890 --> 00:01:53.349 many of the older pension schemes and it should 00:01:53.349 --> 00:01:56.049 be stated in the scheme rules but many like me 00:01:56.049 --> 00:01:58.569 will not have understood or simply forgotten 00:01:58.569 --> 00:02:01.510 about it. I mean I left that pension scheme in 00:02:01.510 --> 00:02:04.950 2011 so when I was told when I started paying 00:02:04.950 --> 00:02:09.139 into it in 1999 I've forgotten mine now. There 00:02:09.139 --> 00:02:11.000 are various campaigns out there trying to get 00:02:11.000 --> 00:02:13.780 this type of practice abolished in defined benefit 00:02:13.780 --> 00:02:16.840 pensions. And if you're impacted by state pension 00:02:16.840 --> 00:02:20.000 reduction, then it'll be a case of having planned 00:02:20.000 --> 00:02:22.800 your retirement on the basis of actually receiving 00:02:22.800 --> 00:02:25.759 a certain amount of income and then realizing 00:02:25.759 --> 00:02:28.180 that part way through, it's going to be cut. 00:02:29.020 --> 00:02:31.479 So your plans may need to change. So what can 00:02:31.479 --> 00:02:35.050 you do? If you're in the same situation as me 00:02:35.050 --> 00:02:38.810 with my state pension reduction, if you've already 00:02:38.810 --> 00:02:42.509 started receiving it, then there's not much you 00:02:42.509 --> 00:02:47.590 can do about it really. Unfortunately, that's 00:02:47.590 --> 00:02:49.849 the way it is. If it's already started, there's 00:02:49.849 --> 00:02:53.629 nothing you do about it, other than maybe campaign 00:02:53.629 --> 00:02:57.039 and force the schemes to change the rules. However, 00:02:57.120 --> 00:03:00.500 if you haven't yet started taking defined benefit 00:03:00.500 --> 00:03:03.819 pension, then there may be a couple of options 00:03:03.819 --> 00:03:07.840 for you. I mean, option one is your scheme may 00:03:07.840 --> 00:03:12.479 offer you a lower start in income and then not 00:03:12.479 --> 00:03:15.199 reduce it when you hit state pension age. And 00:03:15.199 --> 00:03:16.759 that'll give you at least some clarity over your 00:03:16.759 --> 00:03:20.599 future. Or option two is a transfer of your defined 00:03:20.599 --> 00:03:23.460 benefit pension into some kind of personal pension 00:03:23.460 --> 00:03:26.879 or SIP, which you can then withdraw from. as 00:03:26.879 --> 00:03:28.759 and when you like. I mean, if you choose option 00:03:28.759 --> 00:03:31.699 two, it does put you back in control. You'll 00:03:31.699 --> 00:03:34.460 need to request something called a cash equivalent 00:03:34.460 --> 00:03:37.080 transfer value from the scheme. And the scheme 00:03:37.080 --> 00:03:39.979 will offer you a lump sum transfer in exchange 00:03:39.979 --> 00:03:43.719 for giving up your defined benefit pension. And 00:03:43.719 --> 00:03:47.280 you must do this before you reach the normal 00:03:47.280 --> 00:03:50.400 scheme retirement age. You then end up with a 00:03:50.400 --> 00:03:53.210 pot of money sitting at a personal pension. and 00:03:53.210 --> 00:03:56.110 you can then withdraw as much as you like subject 00:03:56.110 --> 00:04:00.449 to tax. This is not really popular, this kind 00:04:00.449 --> 00:04:03.830 of section option for a reason really. Divine 00:04:03.830 --> 00:04:07.210 benefit pensions offer real good certainty and 00:04:07.210 --> 00:04:11.090 private pensions, you actually can't move out 00:04:11.090 --> 00:04:13.310 of them, the larger ones, without actually getting 00:04:13.310 --> 00:04:16.560 formal. advice from a financial advisor. I think 00:04:16.560 --> 00:04:18.120 that's a good thing actually, because you can 00:04:18.120 --> 00:04:21.120 end up losing a lot when you move from a defined 00:04:21.120 --> 00:04:24.959 benefit pension into a defined contribution pension, 00:04:25.639 --> 00:04:28.600 particularly if the markets are unfavorable when 00:04:28.600 --> 00:04:31.339 you do it. Your new personal pension will then 00:04:31.339 --> 00:04:33.759 be invested and could go down as well as up. 00:04:34.399 --> 00:04:36.579 The more money you take out, the more chance 00:04:36.579 --> 00:04:40.120 your pension pot could actually run out before 00:04:40.120 --> 00:04:43.790 you do. Now the first option which I talk to 00:04:43.790 --> 00:04:47.009 is to ask for a lower starting position and then 00:04:47.009 --> 00:04:50.350 have no drop when you reach retirement age. And 00:04:50.350 --> 00:04:53.129 this is the option I've gone for. So I'm retiring 00:04:53.129 --> 00:04:56.670 now at 55 and my annual pension will drop by 00:04:56.670 --> 00:05:00.889 about 800 pound every year instead of 1 ,840 00:05:00.889 --> 00:05:04.490 when I hit 65. Yeah, it did mean 65, not 67. 00:05:04.889 --> 00:05:08.569 This is because the reduction runs from the normal 00:05:08.569 --> 00:05:10.829 retirement age at the time you left a pension 00:05:10.829 --> 00:05:14.899 scheme. which for me was 65. Now I don't get 00:05:14.899 --> 00:05:17.899 my state retirement pension until I'm 67. So 00:05:17.899 --> 00:05:19.879 I'd have had two really difficult years there 00:05:19.879 --> 00:05:25.100 between 65 and 67. My situation is not going 00:05:25.100 --> 00:05:27.500 to be identical to yours, but it is worth checking 00:05:27.500 --> 00:05:30.560 if any of your defined benefits include this 00:05:30.560 --> 00:05:33.839 statement, pension reduction or clawback. Now 00:05:33.839 --> 00:05:35.660 you may have heard of something called the level 00:05:35.660 --> 00:05:38.660 of pension. Now, I think this is different. It's 00:05:38.660 --> 00:05:42.259 an option that some pension schemes offer that 00:05:42.259 --> 00:05:44.959 allow you to receive a higher pension up until 00:05:44.959 --> 00:05:48.180 the date you retire and then drop your pension 00:05:48.180 --> 00:05:51.420 when you reach state pension age. I mean, so 00:05:51.420 --> 00:05:55.079 an example might be you retire at 60 and you 00:05:55.079 --> 00:05:58.120 get a change from your employer to either have 00:05:58.120 --> 00:06:00.420 10 ,000 pounds a year every year until you die. 00:06:00.699 --> 00:06:04.279 or have £15 ,000 a year for the first seven years 00:06:04.279 --> 00:06:07.800 until you're 67 and then they'll drop what they 00:06:07.800 --> 00:06:10.339 pay you to £4 ,000, add that onto your state 00:06:10.339 --> 00:06:13.699 pension and you still get no £15 ,000 a year. 00:06:14.879 --> 00:06:18.879 So that means it's level. Now I say this is difference 00:06:18.879 --> 00:06:21.480 because it's an option that's offered and you 00:06:21.480 --> 00:06:24.399 can accept it or not. Whereas the state pension 00:06:24.399 --> 00:06:27.139 reduction is actually built into the scheme at 00:06:27.139 --> 00:06:29.459 the start and it's not really an option, it's 00:06:29.459 --> 00:06:33.639 just in there. So anyway, what I've agreed is 00:06:33.639 --> 00:06:36.240 to take a lower pension at the beginning and 00:06:36.240 --> 00:06:41.480 have no drop when I reach 65 Okay, cuz I you 00:06:41.480 --> 00:06:44.379 know I really prefer to know where I am now, 00:06:44.519 --> 00:06:49.699 to be honest, rather than suddenly, in 11, 10, 00:06:49.819 --> 00:06:52.459 12 years time, suddenly have a real drop in income 00:06:52.459 --> 00:06:55.939 like that when my state pension starts. My plans 00:06:55.939 --> 00:06:59.420 didn't include that beginning, so I've gone for 00:06:59.420 --> 00:07:02.139 the option to start our lower pension and have 00:07:02.139 --> 00:07:05.000 no drop going through. Well, yeah, the idea of 00:07:05.000 --> 00:07:07.519 this really is for you to check with your pension 00:07:07.519 --> 00:07:09.779 scheme, just see if it applies to you, and don't 00:07:09.779 --> 00:07:12.850 be like me. where it comes as shock when you 00:07:12.850 --> 00:07:15.230 actually put your name to sleep with work already. 00:07:15.810 --> 00:07:17.490 Cool. Thanks for listening everyone and I'll 00:07:17.490 --> 00:07:18.790 see you on the next one. Cheers.