This is the test that decides whether or not you face reductions in benefits if you choose to retire before 65. Its removal would see more of us facing these reductions, although there would be some protection for staff closer to retirement (those born before April 1953 who were on target to pass the 85 test).
Younger members who were on target to pass the 85 test would have some protection too, as benefits built up before October 2006 wouldn’t be reduced.
We are waiting for the fine detail of how these changes will work, but to find out a little more see our separate newsflash 85 test ‘on its last legs’.
Currently the rules allow you to swap some or all of your lump sum for a bigger pension when you retire - this option would go from April. We suspect not many members would miss it, since many feel the ‘exchange rate’ isn’t particularly generous, and question swapping a tax free lump sum for a pension which may well be taxed.
Members retiring after 5th April would have more scope to swap pension for a bigger lump sum - so if retirement is just around the corner, you might want to hang on! The proposed ‘exchange rate’ is £12 extra lump sum for every £1 a year pension given up.
Simpler tax law from April removes many of the tax limits which currently prevent many members choosing this option - but the rules still need amending to allow us to take advantage.
For members who joined from June 1989 there is an annual limit on the pay which contributions and benefits are worked out, currently £105,600. This ‘cap’ will go from April.
If you go on strike, you don’t build up benefits unless you pay extra. The Government proposes changes to the way this extra cost is worked out.
Working past 60 but drawing some pension would be a possibility - if your employer allowed it. You would still of course be able to retire completely if you wanted to.
The pensions we pay to dependent children normally stop at age 17, but can go on to any age if the child continues in full time education etc. Under the proposals they could not go on beyond 23 (unless the child is dependent through disability etc).
Your employer can - in theory - give you extra membership to boost your benefits through a process called augmentation. There is a new proposed limit of 62/3 years (or your membership to 65 if less).
Many of the current limits on how much you can pay to boost your benefits are based on current tax law. Most of these will go from April. There is a proposed change in our Scheme rules which would see the limit for how much extra membership you can buy set at six years, but the Government haven’t decided what other changes to make to our Scheme.
If you leave the Scheme and leave your benefits with us, this is known as deferred benefits. A proposal for next year would allow you to delay drawing these benefits until as late as 75.
Normal retirement age would become 65 for all members. This doesn’t mean you would have to stay till 65, but would mean reductions in benefits could apply if you chose not to - also see the 85 test story earlier in this article.
If you were born on or after 1 April 1953, you might be given the choice of paying extra, to avoid reductions in benefits if you choose to retire before 65.
So in summary, quite a mixed bag - some good news, some not so good news - we wait with baited breath for the actual Regulations. And by the way, one further bit of good news is that increasing the minimum retirement age to 55 hasn’t been mentioned this time!
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