How does age impact income?
Pension scheme members have to make some major financial decisions, particularly when they near retirement age. In this module we will look at how a member’s lifestyle can impact the outcome of their decision.The main factors we will consider are:
Let’s see how a member’s age can affect the amount of pension that could be paid.
DB Schemes
Tony is nearly 55 years old and a member of a DB scheme which has a Normal Retirement Age of 65. He is thinking of retiring at 55 and has been told that his accrued pension earned to date amounts to £20,433.44 p.a. However, if he takes early retirement he will only receive £12,260.06 p.a.
Why will his pension at age 55 be reduced by 40%?
If Tony retires at 55 his pension will be paid for 10 years longer than expected, this is because the Normal Retirement Age for the scheme is 65.
An early retirement factor is applied to the pension accrued to date to offset the cost of paying the pension early.
David is 60 years old and his accrued pension earned to date is £20,433.44 p.a., if he takes early retirement he will receive £16,346.75 p.a.In this case the accrued pension is reduced by 20% as it will only be paid for 5 years longer than expected.
Age has a big impact on early retirement from a DB scheme.
DC Schemes
If a member of a DC scheme purchases an annuity, the amount of income received is based on the amount of money in the member’s fund and the annuity rate for his or her age at the time of purchase.
We will see what could influence a member’s decision and how age and health could impact the amount received.
