From: "Tim" 
Newsgroups: uk.finance
Subject: Re: Tricky Pension Conundrum : AVC versus actuarial reduction?
Date: Sat, 30 Aug 2003 10:05:15 +0000 (UTC)

"Richard Brooks" wrote
> Final salary occupational pension scheme.
> The normal retirement age for future service is being increased by 2 years
> from 60 to 62.
> Members can retain their retirement age of 60 if they pay an extra 2.75%
> contribution.
> The value of this would be saving the actuarial reduction for 2 years
early
> payment if they retire at 60.
> Once the decision is made, you can't change from one option to the other.
>
> So without an accurate crystal ball to predict what the actuarial factors
> etc.will be in the future, and what other investment returns they could
get,
> is this good value?
>
> Could it better to stick the 2.75% in an AVC?
>
> Opinions please!

I'd say it could depend on your current age.  Suppose a 2-year actuarial
reduction knocked off (say) 13% from the pension (realisitic rate - some
(good) factors might knock off less!).  Then, if this were "worth" 2.75%
contributions, then the entire pension (pre-reduction) would be "worth"
21.2% conts (employee & employer combined).

I don't know how generous the benefits are in your scheme, but to be worth
21% conts I'd expect either the benefits to be extremely generous, or you'd
need to be not far off retirement age already.  If you are below, say, 40
then I'd have thought that the benefit of no actuarial reduction would *not*
be worth paying 2.75% conts for.

Overall I'd say paying 2.75% conts looks to be "break-even to poor value".