Quote:
Originally Posted by bizaro86
Under that points system, someone retiring at 55 with 20 years of service and someone retiring at 55 with 2 years of service get the same reduction to their pension of 30%. Obviously the 2 year guy will have a lower base pension, but I can see why the 20 year guy might think that was unfair.
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I don't really see why. It's a question of spreading out your payments over x remaining years vs. y remaining years. If someone retires at 55, they're taking a pension for about 50% longer on average than someone who retires at 65. So why shouldn't it be reduced on that basis? Any pension plan that wants to remain solvent needs to reduce payouts for early retirements.
And that's the worst-case scenario for that system. If the 20-year person worked to 57, they'd only have their pension reduced by 18% (vs 24% for the other person) and if they worked until 60, they'd have an unreduced pension (vs. 15% reduction for the other person).
If anything, the points system favors people in that situation. A lot of DB pensions have moved away from that and just have hard cutoffs for age and service. For the BC teacher's plan for instance, if you have fewer than 35 years service, you lose 4.5% for each year you retire before age 61. So a 55 year old with 30 years' service would have the same 27% reduction as a 55 year old with 2 years' service. The points system on the other hand would give the first person an unreduced pension.