Taking a pension early
Discussion
I have a small DB pension that will pay 8844 at 60 years old. I'm 53 at the moment and am a higher rate taxpayer. I'm planning on working to 63 (at least) and so I will be paying an additional 8844 (or whatever the summ will be) into my DC pension to avoid punitive tax charges on paye income.
If I was to take that pension at 55, it would pay out 7457 at today's rate.
I've calculated that by taking the pension at 55 I would be net negative by 76 years old, assuming DC growth of 5% and DB increase of 3%.
What would you do?
If I was to take that pension at 55, it would pay out 7457 at today's rate.
I've calculated that by taking the pension at 55 I would be net negative by 76 years old, assuming DC growth of 5% and DB increase of 3%.
What would you do?
How is your health and what's your family history like?
I mean if your great grandparents are still alive then I'd not take the DB pension early. OTOH
if your family are the type to live fast / die young then you might as well take it early because you'll probably cark it before you are "net negative"
I mean if your great grandparents are still alive then I'd not take the DB pension early. OTOH
if your family are the type to live fast / die young then you might as well take it early because you'll probably cark it before you are "net negative"
LeoSayer said:
A DB pension will increase your taxable income.
What are these punitive tax charges on PAYE income you refer to?
Yes it will and hence if I deflect the money into my DC I will avoid extra tax.What are these punitive tax charges on PAYE income you refer to?
Loss of Personal allowance at 100k.
Countdown said:
How is your health and what's your family history like?
I mean if your great grandparents are still alive then I'd not take the DB pension early. OTOH
if your family are the type to live fast / die young then you might as well take it early because you'll probably cark it before you are "net negative"
Mother's side good, Father's side not so good.I mean if your great grandparents are still alive then I'd not take the DB pension early. OTOH
if your family are the type to live fast / die young then you might as well take it early because you'll probably cark it before you are "net negative"
What would I do?
I'd avoid taking the DB scheme until I needed it for retirement income. Have you modelled this approach?
I would also contribute to my DC pension in order to defer my income now until the future when I can take 25% tax free and pay basic rate tax on drawdown.
I haven't done the maths on that but I don't think you can really compare a 5% potential investment return with inflation linked (albeit likely capped) DB pension rises.
I'd avoid taking the DB scheme until I needed it for retirement income. Have you modelled this approach?
I would also contribute to my DC pension in order to defer my income now until the future when I can take 25% tax free and pay basic rate tax on drawdown.
I haven't done the maths on that but I don't think you can really compare a 5% potential investment return with inflation linked (albeit likely capped) DB pension rises.
worsy said:
LeoSayer said:
A DB pension will increase your taxable income.
What are these punitive tax charges on PAYE income you refer to?
Yes it will and hence if I deflect the money into my DC I will avoid extra tax.What are these punitive tax charges on PAYE income you refer to?
Loss of Personal allowance at 100k.
Personally I would defer the DB pension as this ought to give an increased payout when you do start to draw it, and continue to maximise pension contributions.
A lot can happen in 2 years but you are on the right track.
Nothing to stop you taking that DB pension at 55 to supplement the income you continue to make from employment and if that extra (taxable pension) income means that you are comfortable sacrificing/exchanging more of your ongoing/continuing employment income for a larger DC pension contribution, nothing should stop you.
Just keep an eye on your health and the possibility(!) that the goal posts will keep moving.
Nothing to stop you taking that DB pension at 55 to supplement the income you continue to make from employment and if that extra (taxable pension) income means that you are comfortable sacrificing/exchanging more of your ongoing/continuing employment income for a larger DC pension contribution, nothing should stop you.
Just keep an eye on your health and the possibility(!) that the goal posts will keep moving.
bompey said:
I don’t think you can recycle by drawing down one pension to pay in to another. I think you get a much reduced contribution limit to your remaining pensions. Please get expert advice on this otherwise it could cost you.
Personally I would defer the DB pension as this ought to give an increased payout when you do start to draw it, and continue to maximise pension contributions.
You can't recycle DC pensions, but you can for DB. Deferring the pension will not increase it sadly. I have another DB pension that I can, and that is the plan there.Personally I would defer the DB pension as this ought to give an increased payout when you do start to draw it, and continue to maximise pension contributions.
LeoSayer said:
What would I do?
I'd avoid taking the DB scheme until I needed it for retirement income. Have you modelled this approach?
I would also contribute to my DC pension in order to defer my income now until the future when I can take 25% tax free and pay basic rate tax on drawdown.
I haven't done the maths on that but I don't think you can really compare a 5% potential investment return with inflation linked (albeit likely capped) DB pension rises.
As above, i can't defer it I'd avoid taking the DB scheme until I needed it for retirement income. Have you modelled this approach?
I would also contribute to my DC pension in order to defer my income now until the future when I can take 25% tax free and pay basic rate tax on drawdown.
I haven't done the maths on that but I don't think you can really compare a 5% potential investment return with inflation linked (albeit likely capped) DB pension rises.
. I already contribute to my DC pension to keep me below the threshold for losing my allowance. Are you sure your figures for the DB pension at 55 and at 60 are correct? The difference looks smaller than I would expect, particularly once inflationary revaluation is taken into account.
Broadly, though, why take the DB pension early if all you are going to do is recycle the income into a SIPP? What are you going to do with the PCLS at 55? Why not leave the DB until 60 and then start recycling into a SIPP?
Broadly, though, why take the DB pension early if all you are going to do is recycle the income into a SIPP? What are you going to do with the PCLS at 55? Why not leave the DB until 60 and then start recycling into a SIPP?
Zigster said:
Are you sure your figures for the DB pension at 55 and at 60 are correct? The difference looks smaller than I would expect, particularly once inflationary revaluation is taken into account.
Broadly, though, why take the DB pension early if all you are going to do is recycle the income into a SIPP? What are you going to do with the PCLS at 55? Why not leave the DB until 60 and then start recycling into a SIPP?
Yup. Latest numbers. I can take it at 50 (well that ship passed) but as soon as I go below 55 the value plummets. Does seem very odd and hence the questions. Broadly, though, why take the DB pension early if all you are going to do is recycle the income into a SIPP? What are you going to do with the PCLS at 55? Why not leave the DB until 60 and then start recycling into a SIPP?
I wasn't going to take a lump sum, figures are based on full pension. I'll take my lump sum from my SIPP when I actually retire.
It is odd that a DB scheme doesn’t offer an increase for deferring. Have you spoken to them as it may be “at the trustees discretion”.
I ‘retired’ last September taking two DB schemes early (reduced) and two late (increased). Am now unexpectedly contracting and making significant payments into a SIPP to make sure I stay under £100k taxable.
I ‘retired’ last September taking two DB schemes early (reduced) and two late (increased). Am now unexpectedly contracting and making significant payments into a SIPP to make sure I stay under £100k taxable.
IJWS15 said:
It is odd that a DB scheme doesn’t offer an increase for deferring. Have you spoken to them as it may be “at the trustees discretion”.
I ‘retired’ last September taking two DB schemes early (reduced) and two late (increased). Am now unexpectedly contracting and making significant payments into a SIPP to make sure I stay under £100k taxable.
I know my DB scheme applied the same % pa as an increase if I deferred as they applied for taking early I ‘retired’ last September taking two DB schemes early (reduced) and two late (increased). Am now unexpectedly contracting and making significant payments into a SIPP to make sure I stay under £100k taxable.
IJWS15 said:
It is odd that a DB scheme doesn’t offer an increase for deferring. Have you spoken to them as it may be “at the trustees discretion”.
I ‘retired’ last September taking two DB schemes early (reduced) and two late (increased). Am now unexpectedly contracting and making significant payments into a SIPP to make sure I stay under £100k taxable.
It's in the FAQs and specifically excludes it. I can of course ask, but expect i'll be directed to the FAQs.I ‘retired’ last September taking two DB schemes early (reduced) and two late (increased). Am now unexpectedly contracting and making significant payments into a SIPP to make sure I stay under £100k taxable.
worsy said:
It's in the FAQs and specifically excludes it. I can of course ask, but expect i'll be directed to the FAQs.
Its quite a complex area and I am not qualified so this needs to be checked but I am pretty sure you can recycle the DB pension payments. Everything I read on this relates to DC schemes.On that basis I'd be taking it sooner rather than later.
TownIdiot said:
worsy said:
It's in the FAQs and specifically excludes it. I can of course ask, but expect i'll be directed to the FAQs.
Its quite a complex area and I am not qualified so this needs to be checked but I am pretty sure you can recycle the DB pension payments. Everything I read on this relates to DC schemes.On that basis I'd be taking it sooner rather than later.
worsy said:
Zigster said:
Are you sure your figures for the DB pension at 55 and at 60 are correct? The difference looks smaller than I would expect, particularly once inflationary revaluation is taken into account.
Broadly, though, why take the DB pension early if all you are going to do is recycle the income into a SIPP? What are you going to do with the PCLS at 55? Why not leave the DB until 60 and then start recycling into a SIPP?
Yup. Latest numbers. I can take it at 50 (well that ship passed) but as soon as I go below 55 the value plummets. Does seem very odd and hence the questions. Broadly, though, why take the DB pension early if all you are going to do is recycle the income into a SIPP? What are you going to do with the PCLS at 55? Why not leave the DB until 60 and then start recycling into a SIPP?
I wasn't going to take a lump sum, figures are based on full pension. I'll take my lump sum from my SIPP when I actually retire.
If you take £7,457 pa from age 55, inflationary increases of, say, 3% pa would give a pension at 60 of £8,644 pa. Which is very close to the pension you have quoted from 60 of £8,844. Yet you’ve had the benefit of five years’ worth of pension.
So is it a really old pension (say in respect of pre April 1997 service) which doesn’t increase in payment? If not, something seems odd. Early retirement reductions should generally be broadly cost neutral but yours seems to be giving you five years’ worth of pension for free.
If the figures are as you say, there doesn’t seem to be any benefit in not taking it as soon as you are able at age 55. But I wonder if your age 60 figure isn’t including inflation between now and age 60?
BTW, public sector schemes generally don’t offer a late retirement increase so there is usually no reason to defer past the normal retirement age (usually 60 for most service for those approaching retirement now).
Zigster said:
If the figures are as you say, there doesn’t seem to be any benefit in not taking it as soon as you are able at age 55. But I wonder if your age 60 figure isn’t including inflation between now and age 60?
Good spot.The aged 60 figure will be subject to 5 years inflation increases i reckon.
If the MPAA rules don't apply I'd still take it now.
The figures are current values and both will rise. I applied a 3% uplift from now to 90 years old on both the 55 and 60 year old pension values to calculate the negative net age.
At 75 the value would be 13468 and 16451 per annum respectively. I also calculated at a conservative 5% growth (2% + 3% inflation) the 5 years of contributions might have grown by 3242.
If I lived to 85 the net loss would therefore be 30k+.
Gamble time
One think I hadn't mentioned but did think about was the fact that on my death, my spouse would then inherit 50% of the remainder.
At 75 the value would be 13468 and 16451 per annum respectively. I also calculated at a conservative 5% growth (2% + 3% inflation) the 5 years of contributions might have grown by 3242.
If I lived to 85 the net loss would therefore be 30k+.
Gamble time
One think I hadn't mentioned but did think about was the fact that on my death, my spouse would then inherit 50% of the remainder.
worsy said:
You can't recycle DC pensions, but you can for DB.
Isn't that the wrong way around? I know the rules are complicated, and, as this is my first year of retirement I haven't done it yet, but my IFA's plan for me (and wife) is to pay money into our SIPPs even though we're drawing from them tax-free.On a DB pension, can you even change the amount it pays? I had a very old one that paid at 65 (I was still working elsewhere) and there was no option to do anything but take the money.
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