Leaving Shell – 80-Point Pension Part 1
Leaving Shell – 80-Point Pension Part 1
Full Transcript:
I’m leaving Shell, but I have not yet reached 80 points. When does my pension start?
For those of you that started with Shell before 2013, you have two pension options. There’s the APF pension and 80-point pension. Unlike the APF pension, the 80-point pension is always paid out in the form of an annuity. Let’s look at a hypothetical example, John, to see the impact of when he starts his pension.
John is leaving Shell, and John is 55 years old. John has an average final compensation or base plus bonus of $250,000 per year. Now, John has 20 years of service under the 80-point plan. Now, John has 75 points, 20 plus 55, so he has not yet reached the 80-point cliff. If John left with a special severance, he would have received immediate pension eligibility as he is at least 50 years old, has at least 20 years of service, and is leaving with a special severance. However, for this example, we’re going to assume that John resigns and does not receive severance.
So, let’s calculate out John’s pension. Using this formula above, we’ll look at 20 years of service and multiply that by 1.6% per year. Now multiply that by his average final compensation of $250,000 per year. And then we’re going to subtract his Social Security offset. His Social Security offset is unique to his situation. For this example, we’re just going to assume that it is $8,000 per year, which gives John’s pension payment of $72,000 per year, or $6,000 per month. If he starts it at age 65, his normal retirement age with Shell.
Now, let’s say John wants to start his pension early. In John’s case, he can start as early as age 60. However, his benefit will be reduced. The reduction updates based on current interest rates and mortality rates. But we’re going to use this table out of the Shell Wealth Summary Plan description. As you can see from this table, if John starts his pension at age 60, he will only receive 61.4% of the benefit. Therefore, John’s pension will then be reduced from $72,000 per year to $44,208 per year. Now that’s quite the reduction.
So, as you can see from this difference, it doesn’t take long for John to come out ahead. If he waits those extra five years before starting his pension. However, the best choice for John really depends on his unique situation what’s his life expectancy, his family situation, and his entire financial picture.
Now, as you can tell, there are a lot of impacts based on your pension. When you leave Shell, how you leave, and how you collect. I encourage you to review your situation with your financial advisor.
Note: The original post was replaced for accuracy.
