Important changes for those considering retirement soon

The Pension Protection Fund (PPF) has announced that it is revising some of its retirement factors from 1 November 2024. The factors being revised are those for: 

• Lump sum commutation,
• Early retirement, and
• Late retirement. 

What are retirement factors?

The PFF protect millions of people throughout the UK who belong to Defined Benefit (DB) pensions schemes, often know as final salary schemes. They make sure members are looked after if the employer funding their pension becomes insolvent. 

The PPF use retirement factors to work out how much they need to pay their members depending on how they decide to receive their payments – for example, whether they take early or late retirement. 

The retirement factors are updated each year to reflect any changes in financial conditions, taking into account external influences such as movements in financial markets and changes to life expectancy. These retirement factors affect the options people may choose to take (such as a tax-free cash lump sum and early or late retirement). 

What are the changes? 

Due to recent changes in financial markets, the PPF has reviewed the factors again and made some changes to their calculations. They have advised that the changes will have the following implications for those taking benefits from 1 November 2024 compared to those taking benefits before 1 November 2024: 

• Normal Pension Age
  Starting your payments at your normal pension age with a tax-free lump sum will result in a smaller lump sum for the same amount of annual compensation given up. 
• Early Retirement 
  Taking early retirement before your normal pension age, will result in a lower level of compensation each year than using the current factors in most cases. For those planning to take a lump sum alongside early retirement, the new factors will result in a smaller lump sum and a lower level of compensation each year in most cases. 
• Late Retirement 
  If you plan to take late retirement, the new factors will result in a higher level of compensation each year than would be calculated using the current factors. For those planning to take a lump sum alongside late retirement, the situation is more complicated, because the new factors are less generous for lump sums, and more generous for late retirement. 

Defined Benefit pensions 

At The Private Office our team are experienced at providing retirement planning advice for both defined benefit and defined contribution pensions. Guidance from a Financial Adviser can help people to choose the most suitable option by creating a personalised retirement plan, taking into account personal circumstances and future aspirations. 

We are also an accredited body which subscribes to The Pension Transfer Gold Standard; a voluntary code of good practice for safeguarded and DB pension transfer advice. We work as a team to ensure that all of our clients looking for a DB pension transfer benefit from the experience and expertise of our accredited Pension Transfer Gold Standards specialists. 

This is a complex area of financial planning and our suitably qualified, unbiased and regulated financial advisers can provide clarity and support to your clients. If you’d like to know more, please speak to your usual TPO Adviser. 

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The information in this article is correct as at 20/08/24.

Source: https://ppf.co.uk/news/Important-changes-for-those-considering-retirement-soon