Taking DB Pension Early

[worsy]

Situation

Two small DB pensions

Pension 1 due to pay at 60 - at current rates £9269 pa
I could take this early (55) and draw £7480 pa

Pension 2 due to pay at 60 at £1706 pa lump sum £5119
I could take this early (56) and draw £1435 with a lump sum of £4791

By the age of 60 I will have invested 7480*5 (37400)+1435*4 (5740) in my SIPP.
That means assuming no growth, and no increase in DB payments it would take me to 81 before I started losing out.

The gamble is therefore growth vs indexing on my DB pensions.

Has anyone been through the conundrum of taking their DB pension early and what did you do?

[Rufus Stone]

Will you still have earned income 55-60?

[Car bon]

I went through this & in the end paid for a one off piece of analysis & advice. It cost me c2k but I consider it well worth it as the advice, which was explained so that I could follow the logic, was different to my initial plan before advice.

There is a little more to it than the basic calculations as there are different revaluation rates used, so your numbers @60 are effectively estimates.

I had 3 DB schemes & ended up taking 2 @55 and leaving the third until 60.

[worsy]

Car bon said:

I went through this & in the end paid for a one off piece of analysis & advice. It cost me c2k but I consider it well worth it as the advice, which was explained so that I could follow the logic, was different to my initial plan before advice.

There is a little more to it than the basic calculations as there are different revaluation rates used, so your numbers @60 are effectively estimates.

I had 3 DB schemes & ended up taking 2 @55 and leaving the third until 60.

Indeed, plus the pension at 55 would grow at the same %age, plus growth compounded on the pension I take assuming I recycle it, all ignored as can only predict.

Rufus Stone said:

Will you still have earned income 55-60?

Yes, until actually retirement. Effectively I am recycling.

[TwigtheWonderkid]

Won't taking your pensions early impact on your ability to continue to pay into a SIPP or any other pension product. Exactly because of the rules around recycling.

[Car bon]

There's loads of detail - the pensions may have different revaluation rates before payment than increases when in payment. There were guaranteed parts of some pensions but not others etc.

I didn't do any sort of reinvestment though. Mine was just about retiring @55 and the best way to fund it between DB's & SIPPs.

[PM3]

TwigtheWonderkid said:

Won't taking your pensions early impact on your ability to continue to pay into a SIPP or any other pension product. Exactly because of the rules around recycling.

Not in the case of drawing a DB penson. As I understand .

[worsy]

PM3 said:

TwigtheWonderkid said:

Won't taking your pensions early impact on your ability to continue to pay into a SIPP or any other pension product. Exactly because of the rules around recycling.

Not in the case of drawing a DB penson. As I understand .

Yes my understanding too.

Car bon said:

There's loads of detail - the pensions may have different revaluation rates before payment than increases when in payment. There were guaranteed parts of some pensions but not others etc.

I didn't do any sort of reinvestment though. Mine was just about retiring @55 and the best way to fund it between DB's & SIPPs.

Interesting, will dig into the schemes. The lower one is civil service, whereas the other is an employee scheme for a financial services company that sells pensions.

[worsy]

Car bon said:

There's loads of detail - the pensions may have different revaluation rates before payment than increases when in payment. There were guaranteed parts of some pensions but not others etc.

I didn't do any sort of reinvestment though. Mine was just about retiring @55 and the best way to fund it between DB's & SIPPs.

I found this for the larger one,

Revaluation after leaving (pensionable service before 1 April 2007)
Your pension will increase after you leave the Scheme in line with the increase in the Retail Prices Index, up to a maximum of 5% a
year.
Pension increases (pensionable service before 1 April 2007)
Your pension will increase in payment in line with the increase in the Retail Prices Index, up to a maximum of 5% a year.

[chip*]

Just contact your pension administrator and request for a copy of the DB scheme rule book.
Pretty dry reading, but it will reveal everything you need to know about the pension rules and benefits etc..

[worsy]

chip* said:

Just contact your pension administrator and request for a copy of the DB scheme rule book.
Pretty dry reading, but it will reveal everything you need to know about the pension rules and benefits etc..

Yup I think that is good advice.

I just reliased I get a temp pension from 60 to 67 to bridge state pension age and post calculation, break even is aged 76. Not quite so attractive now

[Steve H]

worsy said:

Yup I think that is good advice.

I just reliased I get a temp pension from 60 to 67 to bridge state pension age and post calculation, break even is aged 76. Not quite so attractive now

It’s still 20 years away and if you are assuming that probable growth will not completely batter any indexing then you are discounting a significant factor.


Mrs H had a similar dilemma with her teachers pension when it came to getting it early and how much lump sum to take. In each case the breakeven point was a very long way off and it was a fairly clear decision.