Taking Pension at 55?
Discussion
I need some help with a bit of man maths.
I have a deferred DB pension I can take at 55 (in 2022) that pays £20k a year, or at 67 for £36k pa (or any age in between for a pro-rata value).
A quick bit of maths tells me that the total amount I receive will be roughly equal by the time I am 85 (and taking it later is obviously more beneficial after this age).
I intend to keep working until 67 or beyond, so I know I will be paying more income tax if I take it early, but I'm tempted to enjoy additional income whilst I can still enjoy it.
I do have other pensions that will kick in at 67, so I'm not going to be destitute either way.
What do you think I should do?
I have a deferred DB pension I can take at 55 (in 2022) that pays £20k a year, or at 67 for £36k pa (or any age in between for a pro-rata value).
A quick bit of maths tells me that the total amount I receive will be roughly equal by the time I am 85 (and taking it later is obviously more beneficial after this age).
I intend to keep working until 67 or beyond, so I know I will be paying more income tax if I take it early, but I'm tempted to enjoy additional income whilst I can still enjoy it.
I do have other pensions that will kick in at 67, so I'm not going to be destitute either way.
What do you think I should do?
To have accrued that pension, I would assume you are earning a salary somewhere in the higher rate tax bracket.
If so, if you take your pension early at 55, you are going to be paying at least 40% income tax on it. So you would only receive net something like an extra £1,000 per month.
Whereas if you delay the pension, you are probably going to be able to take most, if not all, at the lower rate of tax (depending how much longer you continue to work after that point).
Because of the extra income tax you would pay if you take it early, unless you really need the extra £1,000 per month, you would be better to delay it.
If so, if you take your pension early at 55, you are going to be paying at least 40% income tax on it. So you would only receive net something like an extra £1,000 per month.
Whereas if you delay the pension, you are probably going to be able to take most, if not all, at the lower rate of tax (depending how much longer you continue to work after that point).
Because of the extra income tax you would pay if you take it early, unless you really need the extra £1,000 per month, you would be better to delay it.
gileso said:
A quick bit of maths tells me that the total amount I receive will be roughly equal by the time I am 85 (and taking it later is obviously more beneficial after this age).
Im lead to believe that's how pensions work, there's a typical age the pension companies expect us to live to. If we draw the pension early we get less each month but are claiming it for a longer period. Drawing it later pays you more each month but you are claiming it for shorter period of time. At the time we reach the typical age we will have received the same amount. Live longer than the typical age and we gain ££.I’m taking mine at 55 & using a combination of Isas and cash .
I figure I may as well have some quality years before things slow down as I figure I’ll need/spend less the older i get .
Working whilst taking pension is a conundrum.
I guess being self employed and using a company name might avoid the issue of paying more tax ?
I figure I may as well have some quality years before things slow down as I figure I’ll need/spend less the older i get .
Working whilst taking pension is a conundrum.
I guess being self employed and using a company name might avoid the issue of paying more tax ?
gileso said:
I need some help with a bit of man maths.
I have a deferred DB pension I can take at 55 (in 2022) that pays £20k a year, or at 67 for £36k pa (or any age in between for a pro-rata value).
A quick bit of maths tells me that the total amount I receive will be roughly equal by the time I am 85 (and taking it later is obviously more beneficial after this age).
I make it break even at 82.I have a deferred DB pension I can take at 55 (in 2022) that pays £20k a year, or at 67 for £36k pa (or any age in between for a pro-rata value).
A quick bit of maths tells me that the total amount I receive will be roughly equal by the time I am 85 (and taking it later is obviously more beneficial after this age).
By not taking the pension from 55 to 67, you're losing out on £20K a year for 12 years, so at 67 you're £240K down. From 67 on, you get an extra £16K a year, so in 15 years you'll have made up the lost £240K.
Unless I've misunderstood, which is entirely possible.
TwigtheWonderkid said:
I make it break even at 82.
By not taking the pension from 55 to 67, you're losing out on £20K a year for 12 years, so at 67 you're £240K down. From 67 on, you get an extra £16K a year, so in 15 years you'll have made up the lost £240K.
Unless I've misunderstood, which is entirely possible.
And if it is the case that the initial pension would be paid at the higher rate of tax (at least until the OP actually retired), it probably moves the breakeven point to something like 78 years old.By not taking the pension from 55 to 67, you're losing out on £20K a year for 12 years, so at 67 you're £240K down. From 67 on, you get an extra £16K a year, so in 15 years you'll have made up the lost £240K.
Unless I've misunderstood, which is entirely possible.
TwigtheWonderkid said:
I make it break even at 82.
By not taking the pension from 55 to 67, you're losing out on £20K a year for 12 years, so at 67 you're £240K down. From 67 on, you get an extra £16K a year, so in 15 years you'll have made up the lost £240K.
Unless I've misunderstood, which is entirely possible.
Looking at a similar conundrum for my wife who has a few more years to go in a teacher pension. The calculation there is similar to above but as her DB is index linked to some degree the gain isnt as simple as 12 x 20K as the 20K will grow. There are numerous videos on YT which point to it being worth taking sooner at the reduced rate in the teachers case. By not taking the pension from 55 to 67, you're losing out on £20K a year for 12 years, so at 67 you're £240K down. From 67 on, you get an extra £16K a year, so in 15 years you'll have made up the lost £240K.
Unless I've misunderstood, which is entirely possible.
YMMV
cavey76 said:
TwigtheWonderkid said:
I make it break even at 82.
By not taking the pension from 55 to 67, you're losing out on £20K a year for 12 years, so at 67 you're £240K down. From 67 on, you get an extra £16K a year, so in 15 years you'll have made up the lost £240K.
Unless I've misunderstood, which is entirely possible.
Looking at a similar conundrum for my wife who has a few more years to go in a teacher pension. The calculation there is similar to above but as her DB is index linked to some degree the gain isnt as simple as 12 x 20K as the 20K will grow. There are numerous videos on YT which point to it being worth taking sooner at the reduced rate in the teachers case. By not taking the pension from 55 to 67, you're losing out on £20K a year for 12 years, so at 67 you're £240K down. From 67 on, you get an extra £16K a year, so in 15 years you'll have made up the lost £240K.
Unless I've misunderstood, which is entirely possible.
YMMV
Take the £20k from 55 and stick it all on black annually until you're 67.
Be a great day out at the Casino, win or lose.
Make it your wedding anniversary or birthday for extra fun.
Someone better than me at maffs will be along soon to let us all know what the odds are that he'll be up by 67.
And have had 12 years' more playtime.
What's not to like?
Be a great day out at the Casino, win or lose.
Make it your wedding anniversary or birthday for extra fun.
Someone better than me at maffs will be along soon to let us all know what the odds are that he'll be up by 67.
And have had 12 years' more playtime.
What's not to like?
rfisher said:
Take the £20k from 55 and stick it all on black annually until you're 67.
B
Nice idea B
I'll even act as the casino for him. gileso, if you send me the £20k I'll spin the roulette wheel. In fact I've just spun it, and it was red. Hard luck. I'll pm you my bank details to send me the £20k.
Catch ya next year
Thanks for all the constructive replies - even the idea of an annual casino trip appeals!
A couple of things. Income tax - yes, well aware the actual cash I take will be reduced by the higher tax rate whilst I'm still working. I'll still be wqrking because previous issues mean I've got a mortgage that lasts all the way up to retirement age - although the pension would cover that on an annual basis.
The 'breakeven point' in gross income terms is a bit higher than 82 years due to index-linking of the payments.
I suppose the main point is that I my only reference for potential longevity is that my Mum has early onset dementia at 72 (no paternal reference due to complicated family issues) - no point having a higher pension if I can't enjoy it.
Thanks again. Still got time to think about it...
A couple of things. Income tax - yes, well aware the actual cash I take will be reduced by the higher tax rate whilst I'm still working. I'll still be wqrking because previous issues mean I've got a mortgage that lasts all the way up to retirement age - although the pension would cover that on an annual basis.
The 'breakeven point' in gross income terms is a bit higher than 82 years due to index-linking of the payments.
I suppose the main point is that I my only reference for potential longevity is that my Mum has early onset dementia at 72 (no paternal reference due to complicated family issues) - no point having a higher pension if I can't enjoy it.
Thanks again. Still got time to think about it...
gileso said:
....
The 'breakeven point' in gross income terms is a bit higher than 82 years due to index-linking of the payments.
..
I presume that is because you are accounting for the index-linking in the pension from the point it begins to be paid. But wouldn't there also be some uplift in the deferred pension before it begins to be drawn? The 'breakeven point' in gross income terms is a bit higher than 82 years due to index-linking of the payments.
..
So you have one DB scheme that you could access at 55 but no other pension pots that are accessible before 67?
You could take your DB pension from 55 and this would not trigger the MPAA meaning that you could continue to make contributions in excess of £4K pa for longer and get full tax relief on these contributions (assuming you have available Annual Allowance).
This could help you ‘bank’ additional assets within a personal pension which you could then flexibly access at some later date (25% tax free, with the balance held in drawdown plan to be used at some later date - income tax due as and when you take it).
Eg.
If you pay 40% tax and receive £12k of DB pension income…. Pay £12k into your SIPP > get 40% tax relief > SIPP is boosted by £20k > you then take £5k PCLS and leave £15k in FAD.
End result is that £12k of gross pension paid by your DB scheme, which would have been worth just £7.2k net after 40% tax, has been converted into £5k of tax free cash and £15k added to your SIPP….
You could take your DB pension from 55 and this would not trigger the MPAA meaning that you could continue to make contributions in excess of £4K pa for longer and get full tax relief on these contributions (assuming you have available Annual Allowance).
This could help you ‘bank’ additional assets within a personal pension which you could then flexibly access at some later date (25% tax free, with the balance held in drawdown plan to be used at some later date - income tax due as and when you take it).
Eg.
If you pay 40% tax and receive £12k of DB pension income…. Pay £12k into your SIPP > get 40% tax relief > SIPP is boosted by £20k > you then take £5k PCLS and leave £15k in FAD.
End result is that £12k of gross pension paid by your DB scheme, which would have been worth just £7.2k net after 40% tax, has been converted into £5k of tax free cash and £15k added to your SIPP….
TwigtheWonderkid said:
gileso said:
I need some help with a bit of man maths.
I have a deferred DB pension I can take at 55 (in 2022) that pays £20k a year, or at 67 for £36k pa (or any age in between for a pro-rata value).
A quick bit of maths tells me that the total amount I receive will be roughly equal by the time I am 85 (and taking it later is obviously more beneficial after this age).
I make it break even at 82.I have a deferred DB pension I can take at 55 (in 2022) that pays £20k a year, or at 67 for £36k pa (or any age in between for a pro-rata value).
A quick bit of maths tells me that the total amount I receive will be roughly equal by the time I am 85 (and taking it later is obviously more beneficial after this age).
By not taking the pension from 55 to 67, you're losing out on £20K a year for 12 years, so at 67 you're £240K down. From 67 on, you get an extra £16K a year, so in 15 years you'll have made up the lost £240K.
Unless I've misunderstood, which is entirely possible.
Personally, I would take a more balanced approach and look at taking the pension at about 61 years with a view to full retirement then.
I'd be rather concerned at the assumption that anybody will live to 82, or even 67. The stats may well support that it's highly possible but I'm also aware of many who have died, or become seriously ill, well before that time.
Personally, I'd want to properly live my life while I'm both alive - and fit enough to do whatever I want.
Personally, I'd want to properly live my life while I'm both alive - and fit enough to do whatever I want.
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