Taking Final Salary Pension Early - Thoughts Please
Discussion
I'll be 55 in December and could take my pension, reduced by 25% to £22,200. I could wait until 60 and take £29k. (I can take it at any point in between too, and it's index linked).
Before I decide whether to take it early a few comments from the savvy people on here would be appreciated. I won't post all sorts of other figures about other income/savings, suffice to say that I don't need to take the pension now. I am however very tempted to take it now.
What I would say though is that I'm still working (employed and self-employed), and expect to carry on working into my early 60s. In other words, and for the sake of my decision making process, I'll be paying income tax on all of my pension income until I give up work.
A quick calculation (allowing for 2.5% RPI and a similar increase in the personal allowance) suggests that at around 74.5 years of age I'll have received the same amount of "take home" pay from taking my pension at 55 as I would have at 60. After that age, the figure from waiting until I'm 60 becomes greater.
(By the way, I'm VERY risk averse, so transferring into a SIPP has already been ruled out).
Three more quick points:
1 - I lost out when the pension rules changed in 2008/09. When I took voluntary redundancy I was only 5.5 years from being able to take my pension at 50, so I have what is probably an irrational fear that if I wait they might move the goalposts again. In my mind once I'm being paid my pension there's no danger of this.
2 - I'm well aware that "How long will I live?" is a big variable. I think I'll make 75 so waiting until I'm 60 would be the logical choice, but as mentioned above taking it now is appealing.
3 - Our home is paid for, and my wife is in a similar situation, with a pension of around 60% of mine, which she can take from next October onwards if she wishes.
So given that my financial position isn't dictating an obvious choice, what might be the opinions of some of you on here? All comments are very welcome.
Thank you.
Before I decide whether to take it early a few comments from the savvy people on here would be appreciated. I won't post all sorts of other figures about other income/savings, suffice to say that I don't need to take the pension now. I am however very tempted to take it now.
What I would say though is that I'm still working (employed and self-employed), and expect to carry on working into my early 60s. In other words, and for the sake of my decision making process, I'll be paying income tax on all of my pension income until I give up work.
A quick calculation (allowing for 2.5% RPI and a similar increase in the personal allowance) suggests that at around 74.5 years of age I'll have received the same amount of "take home" pay from taking my pension at 55 as I would have at 60. After that age, the figure from waiting until I'm 60 becomes greater.
(By the way, I'm VERY risk averse, so transferring into a SIPP has already been ruled out).
Three more quick points:
1 - I lost out when the pension rules changed in 2008/09. When I took voluntary redundancy I was only 5.5 years from being able to take my pension at 50, so I have what is probably an irrational fear that if I wait they might move the goalposts again. In my mind once I'm being paid my pension there's no danger of this.
2 - I'm well aware that "How long will I live?" is a big variable. I think I'll make 75 so waiting until I'm 60 would be the logical choice, but as mentioned above taking it now is appealing.
3 - Our home is paid for, and my wife is in a similar situation, with a pension of around 60% of mine, which she can take from next October onwards if she wishes.
So given that my financial position isn't dictating an obvious choice, what might be the opinions of some of you on here? All comments are very welcome.
Thank you.
You potentially have another option, transfer out of your DB scheme, it might be worth say 700k, and draw down what you want as you go. You’ve broken the ties with your employer and their pension fund that way
It’s not without risk however, primarily the market falling, and advice would be needed.
It’s not without risk however, primarily the market falling, and advice would be needed.
Heres Johnny said:
You potentially have another option, transfer out of your DB scheme, it might be worth say 700k, and draw down what you want as you go. You’ve broken the ties with your employer and their pension fund that way
It’s not without risk however, primarily the market falling, and advice would be needed.
Thanks, I've already ruled that out, I'm far too risk averse. (The estimated transfer value is around £850k).It’s not without risk however, primarily the market falling, and advice would be needed.
I’d take it.
If you don’t need it while you continue to work, I’d save it all and put it in an ISA/investment vehicle.
By the time 60 comes around, you’ll likely have a pot of saved pension cash that can generate a few thousand a year (tax free if in an ISA), perhaps making up the difference between the two DB pensions - once tax is factored in.
In the 5 years leading up to your 60th - you’ve got a bird in the hand, so to speak.
If you don’t need it while you continue to work, I’d save it all and put it in an ISA/investment vehicle.
By the time 60 comes around, you’ll likely have a pot of saved pension cash that can generate a few thousand a year (tax free if in an ISA), perhaps making up the difference between the two DB pensions - once tax is factored in.
In the 5 years leading up to your 60th - you’ve got a bird in the hand, so to speak.
Testaburger said:
I’d take it.
If you don’t need it while you continue to work, I’d save it all and put it in an ISA/investment vehicle.
By the time 60 comes around, you’ll likely have a pot of saved pension cash that can generate a few thousand a year (tax free if in an ISA), perhaps making up the difference between the two DB pensions - once tax is factored in.
In the 5 years leading up to your 60th - you’ve got a bird in the hand, so to speak.
Thank you. That's something I'd considered too. If you don’t need it while you continue to work, I’d save it all and put it in an ISA/investment vehicle.
By the time 60 comes around, you’ll likely have a pot of saved pension cash that can generate a few thousand a year (tax free if in an ISA), perhaps making up the difference between the two DB pensions - once tax is factored in.
In the 5 years leading up to your 60th - you’ve got a bird in the hand, so to speak.
What would be your motivation in taking it early? Bear in mind, if you die prematurely your wife’s dependents pension may be lower for longer.
If you want to buy something, can that objective be achieved in another way and more beneficially? Eg, a cheap loan?
You’re risk averse, so if you don’t want to buy something, what can you do with the money once you get it? I assume you won’t want to invest it, so it sits in the bank losing value through inflation. You’ll also pay a chunk of tax which might seem like a fear of loss through risk becoming an even bigger self fulfilling prophecy.
If you want to buy something, can that objective be achieved in another way and more beneficially? Eg, a cheap loan?
You’re risk averse, so if you don’t want to buy something, what can you do with the money once you get it? I assume you won’t want to invest it, so it sits in the bank losing value through inflation. You’ll also pay a chunk of tax which might seem like a fear of loss through risk becoming an even bigger self fulfilling prophecy.
SCEtoAUX said:
I'll be 55 in December and could take my pension, reduced by 25% to £22,200. I could wait until 60 and take £29k. (I can take it at any point in between too, and it's index linked).
Before I decide whether to take it early a few comments from the savvy people on here would be appreciated. I won't post all sorts of other figures about other income/savings, suffice to say that I don't need to take the pension now. I am however very tempted to take it now.
What I would say though is that I'm still working (employed and self-employed), and expect to carry on working into my early 60s. In other words, and for the sake of my decision making process, I'll be paying income tax on all of my pension income until I give up work.
A quick calculation (allowing for 2.5% RPI and a similar increase in the personal allowance) suggests that at around 74.5 years of age I'll have received the same amount of "take home" pay from taking my pension at 55 as I would have at 60. After that age, the figure from waiting until I'm 60 becomes greater.
(By the way, I'm VERY risk averse, so transferring into a SIPP has already been ruled out).
Three more quick points:
1 - I lost out when the pension rules changed in 2008/09. When I took voluntary redundancy I was only 5.5 years from being able to take my pension at 50, so I have what is probably an irrational fear that if I wait they might move the goalposts again. In my mind once I'm being paid my pension there's no danger of this.
2 - I'm well aware that "How long will I live?" is a big variable. [b]I think I'll make 75 so waiting until I'm 60 would be the logical choice, but as mentioned above taking it now is appealing.p.b]
3 - Our home is paid for, and my wife is in a similar situation, with a pension of around 60% of mine, which she can take from next October onwards if she wishes.
So given that my financial position isn't dictating an obvious choice, what might be the opinions of some of you on here? All comments are very welcome.
Thank you.
Normal pensioner mortality would suggest closer to 85 would be a more realistic expectation.Before I decide whether to take it early a few comments from the savvy people on here would be appreciated. I won't post all sorts of other figures about other income/savings, suffice to say that I don't need to take the pension now. I am however very tempted to take it now.
What I would say though is that I'm still working (employed and self-employed), and expect to carry on working into my early 60s. In other words, and for the sake of my decision making process, I'll be paying income tax on all of my pension income until I give up work.
A quick calculation (allowing for 2.5% RPI and a similar increase in the personal allowance) suggests that at around 74.5 years of age I'll have received the same amount of "take home" pay from taking my pension at 55 as I would have at 60. After that age, the figure from waiting until I'm 60 becomes greater.
(By the way, I'm VERY risk averse, so transferring into a SIPP has already been ruled out).
Three more quick points:
1 - I lost out when the pension rules changed in 2008/09. When I took voluntary redundancy I was only 5.5 years from being able to take my pension at 50, so I have what is probably an irrational fear that if I wait they might move the goalposts again. In my mind once I'm being paid my pension there's no danger of this.
2 - I'm well aware that "How long will I live?" is a big variable. [b]I think I'll make 75 so waiting until I'm 60 would be the logical choice, but as mentioned above taking it now is appealing.p.b]
3 - Our home is paid for, and my wife is in a similar situation, with a pension of around 60% of mine, which she can take from next October onwards if she wishes.
So given that my financial position isn't dictating an obvious choice, what might be the opinions of some of you on here? All comments are very welcome.
Thank you.
If there is a strong reason why you think that your life expectancy is going to be materially different, it could be worth seeking out the services of a specialist annuity provider, offering enhanced or impaired annuities.
If there is a genuine medical reason that you are likely to have a shorter than average lifespan, then you could take the transfer value and purchase an impaired annuity.
This gives you the certainty that you have with the DB scheme (and don’t have with the drawdown option), but could provide a materially higher income, depending on the extent of any medical condition.
Worth considering?!
Ginge R said:
What would be your motivation in taking it early? Bear in mind, if you die prematurely your wife’s dependents pension may be lower for longer.
If you want to buy something, can that objective be achieved in another way and more beneficially? Eg, a cheap loan?
You’re risk averse, so if you don’t want to buy something, what can you do with the money once you get it? I assume you won’t want to invest it, so it sits in the bank losing value through inflation. You’ll also pay a chunk of tax which might seem like a fear of loss through risk becoming an even bigger self fulfilling prophecy.
There's nothing we're looking at buying, and the answers to your other questions are:If you want to buy something, can that objective be achieved in another way and more beneficially? Eg, a cheap loan?
You’re risk averse, so if you don’t want to buy something, what can you do with the money once you get it? I assume you won’t want to invest it, so it sits in the bank losing value through inflation. You’ll also pay a chunk of tax which might seem like a fear of loss through risk becoming an even bigger self fulfilling prophecy.
Motivation? Well I am worried (unduly so I'm sure) that the rules might get changed again. I feel that once I'm taking my pension it won't get taken away, but if I decide to wait who is to say that another financial crisis won't force me to wait until I'm 60 (or older!!!)?
What will I do with the money? Two things. Firstly I'm not so risk averse* that I won't look at some investments so I'll be perhaps saving £1000/month of it. First I'll top up our Premium Bonds to £50k each and then look at other investment options of a medium term/low risk/tax efficient nature.
Secondly we'll have a little more to spend each month, so that will go on hobbies/holidays/social stuff. Nothing flash, just what we do now but a little more often.
The tax is a consideration for sure but I don't really think I'll give up working for a number of years. So whenever I take my pension I'm going to be paying tax on all of it until I stop work.
Edit:
- I said "VERY risk averse" in my initial post. What I meant was that I really don't fancy transferring to a SIPP and taking on the risk that my pension provider currently takes. Once I'm happy that I can pay my bills and enjoy a few simple pleasures, a bit of risk with what's left is fine.
Edited by SCEtoAUX on Sunday 26th August 10:14
Given that the tax is a consideration you could look into taking it now and investing the payments into a personal pension, which would make them tax deductible.
That may serve the purpose you want, of starting to claim to (you hope) stop any future adverse rule changes while not subjecting you to additional tax.
It’s important for me to note (for me, not for you), that this is not financial advice, just a suggestion of ideas that you could investigate with a regulated advisor.
Edited to add, as others have said, you need to understand that any choice exposes you to risks, you can’t avoid them all, so need to avoid those that you care more about.
In terms of the SIPP route, cou can choose to invest in government bonds in your SIPP, or even leave the money in cash in there.
It’s worth remembering that removing the tax gives a certainty of a gain.
That may serve the purpose you want, of starting to claim to (you hope) stop any future adverse rule changes while not subjecting you to additional tax.
It’s important for me to note (for me, not for you), that this is not financial advice, just a suggestion of ideas that you could investigate with a regulated advisor.
Edited to add, as others have said, you need to understand that any choice exposes you to risks, you can’t avoid them all, so need to avoid those that you care more about.
In terms of the SIPP route, cou can choose to invest in government bonds in your SIPP, or even leave the money in cash in there.
It’s worth remembering that removing the tax gives a certainty of a gain.
Edited by James_B on Sunday 26th August 10:47
Have you looked at the numbers in detail? £22k from a pot of £850k is very, very poor value.
You say you are risk averse but do you actually understand the risks i.e are you making an informed decision or are you just basing your risk factors on past experience? This is called confirmation bias...
IMHO you are wasting an amazing opportunity.
You say you are risk averse but do you actually understand the risks i.e are you making an informed decision or are you just basing your risk factors on past experience? This is called confirmation bias...
IMHO you are wasting an amazing opportunity.
red_slr said:
Have you looked at the numbers in detail? £22k from a pot of £850k is very, very poor value.
You say you are risk averse but do you actually understand the risks i.e are you making an informed decision or are you just basing your risk factors on past experience? This is called confirmation bias...
IMHO you are wasting an amazing opportunity.
Thanks to everyone who has helped so far, and in reference to the above I have very detailed figures in front of me. I can take a pension of £22,185 in December, and according to my latest statement if I wait until 60 my deferred pension will be £29,062. That statement also gives an estimated transfer value of £833k.You say you are risk averse but do you actually understand the risks i.e are you making an informed decision or are you just basing your risk factors on past experience? This is called confirmation bias...
IMHO you are wasting an amazing opportunity.
The letter from April (which gave the £22,185 figure) estimated my transfer value at £873k and I assume that the reduction of transfer value is due to changes in the financial markets and interest rates since April.
I assume the amazing opportunity is transferring to a SIPP, and of course the returns could be far better if I do that. I can also draw down a big wedge of cash can't I? But... all of the risk is then mine and I could find myself in trouble.
Also, my wife is in a very similar situation but with around 60% of the figures. She's 55 next October and I think that if there's any transferring out/SIPP investing to be done, then it's her pension that we'd do it with.
Once again, thanks to everyone so far.
Edited to add that my wife would receive 2/3rds of my full pension when I die.
Edited by SCEtoAUX on Sunday 26th August 10:51
red_slr said:
Have you looked at the numbers in detail? £22k from a pot of £850k is very, very poor value.
You say you are risk averse but do you actually understand the risks i.e are you making an informed decision or are you just basing your risk factors on past experience? This is called confirmation bias...
IMHO you are wasting an amazing opportunity.
Apologies if I missed it, but where did the OP state an 850k value?You say you are risk averse but do you actually understand the risks i.e are you making an informed decision or are you just basing your risk factors on past experience? This is called confirmation bias...
IMHO you are wasting an amazing opportunity.
If so, then I agree entirely.
SCEtoAUX said:
Thanks to everyone who has helped so far, and in reference to the above I have very detailed figures in front of me. I can take a pension of £22,185 in December, and according to my latest statement if I wait until 60 my deferred pension will be £29,062. That statement also gives an estimated transfer value of £833k.
The letter from April (which gave the £22,185 figure) estimated my transfer value at £873k and I assume that the reduction of transfer value is due to changes in the financial markets and interest rates since April.
I assume the amazing opportunity is transferring to a SIPP, and of course the returns could be far better if I do that. I can also draw down a big wedge of cash can't I? But... all of the risk is then mine and I could find myself in trouble.
Also, my wife is in a very similar situation but with around 60% of the figures. She's 55 next October and I think that if there's any transferring out/SIPP investing to be done, then it's her pension that we'd do it with.
Once again, thanks to everyone so far.
It sounds like you are comparing the transfer value in the future to the annuity now, which does not make sense.The letter from April (which gave the £22,185 figure) estimated my transfer value at £873k and I assume that the reduction of transfer value is due to changes in the financial markets and interest rates since April.
I assume the amazing opportunity is transferring to a SIPP, and of course the returns could be far better if I do that. I can also draw down a big wedge of cash can't I? But... all of the risk is then mine and I could find myself in trouble.
Also, my wife is in a very similar situation but with around 60% of the figures. She's 55 next October and I think that if there's any transferring out/SIPP investing to be done, then it's her pension that we'd do it with.
Once again, thanks to everyone so far.
You keep mentioning the risk of a SIPP, but what risk are you referring to? If your SIPP is all cash then what are you concerned will happen to it?
Testaburger said:
red_slr said:
Have you looked at the numbers in detail? £22k from a pot of £850k is very, very poor value.
You say you are risk averse but do you actually understand the risks i.e are you making an informed decision or are you just basing your risk factors on past experience? This is called confirmation bias...
IMHO you are wasting an amazing opportunity.
Apologies if I missed it, but where did the OP state an 850k value?You say you are risk averse but do you actually understand the risks i.e are you making an informed decision or are you just basing your risk factors on past experience? This is called confirmation bias...
IMHO you are wasting an amazing opportunity.
If so, then I agree entirely.
James_B said:
SCEtoAUX said:
Thanks to everyone who has helped so far, and in reference to the above I have very detailed figures in front of me. I can take a pension of £22,185 in December, and according to my latest statement if I wait until 60 my deferred pension will be £29,062. That statement also gives an estimated transfer value of £833k.
The letter from April (which gave the £22,185 figure) estimated my transfer value at £873k and I assume that the reduction of transfer value is due to changes in the financial markets and interest rates since April.
I assume the amazing opportunity is transferring to a SIPP, and of course the returns could be far better if I do that. I can also draw down a big wedge of cash can't I? But... all of the risk is then mine and I could find myself in trouble.
Also, my wife is in a very similar situation but with around 60% of the figures. She's 55 next October and I think that if there's any transferring out/SIPP investing to be done, then it's her pension that we'd do it with.
Once again, thanks to everyone so far.
It sounds like you are comparing the transfer value in the future to the annuity now, which does not make sense.The letter from April (which gave the £22,185 figure) estimated my transfer value at £873k and I assume that the reduction of transfer value is due to changes in the financial markets and interest rates since April.
I assume the amazing opportunity is transferring to a SIPP, and of course the returns could be far better if I do that. I can also draw down a big wedge of cash can't I? But... all of the risk is then mine and I could find myself in trouble.
Also, my wife is in a very similar situation but with around 60% of the figures. She's 55 next October and I think that if there's any transferring out/SIPP investing to be done, then it's her pension that we'd do it with.
Once again, thanks to everyone so far.
You keep mentioning the risk of a SIPP, but what risk are you referring to? If your SIPP is all cash then what are you concerned will happen to it?
However, clearly it's something to be reconsidered and of course I would take the appropriate advice (as required by law) before taking such a step.
I think I'm assuming that if I transfer out of the scheme, I'd need growth in the fund (the SIPP? - via the stock market and therefore with an element of risk) or else the money might run out before I die.
If it's all in cash and achieving no growth I can't see £833k lasting long.
Heres Johnny said:
SCEtoAUX said:
If it's all in cash and achieving no growth I can't see £833k lasting long.
Nearly 40 years based on a 22k draw downOk, that’s not index linked, but then cautious investments would earn you a few % a year growth to counteract inflation.
Do you have children or a family of some kind that you would like to leave money too when you die? Are you aware you can will someone a SIPP and its IHT and CGT exempt should you die before 75? If you die over 75 the person who you will it too will only have to pay tax like a normal pension, no IHT again.
red_slr said:
Heres Johnny said:
SCEtoAUX said:
If it's all in cash and achieving no growth I can't see £833k lasting long.
Nearly 40 years based on a 22k draw downOk, that’s not index linked, but then cautious investments would earn you a few % a year growth to counteract inflation.
Do you have children or a family of some kind that you would like to leave money too when you die? Are you aware you can will someone a SIPP and its IHT and CGT exempt should you die before 75? If you die over 75 the person who you will it too will only have to pay tax like a normal pension, no IHT again.
When I started the thread I was really looking only for opinions on take it now/later but I must admit I have been re-awakened to the option(s) that I previously had dismissed. I will do some more reading and thinking, and I really do appreciate the people on here taking time to give their thoughts.
red_slr said:
Over a 40 year period you would only need to return 2.4% to have 100% of your pot left after 40 years.... although inflation might dent it. With a more realistic return of 4% and a 22k withdrawal over 40 years you would have just shy of £2,000,000.... at 4% your SWR would be £34k PA.
Are you sure about that? 1) Inflation certainly would make a massive difference, so can't be ignored
2) Secondly, it's not just the average return that matters over the period, it is the distribution of returns in each year - when you're drawing down the money, then if you eat into the capital early on, it's much harder to earn it back later on. And the sorts of asset that will produce long term returns of 4% plus, will have long tails and volatile returns!
Edited by sidicks on Sunday 26th August 18:57
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