Pension now or wait?

CEON44 · 13 October 2016 at 9:39AM

My wife has an old works deferred pension lying in wait. I was wondering if she would be better to take it now rather than wait until her retirement age. Her circumstances are that she is coming 57, hasnt worked for 3 years due to a mental health issue and is unlikely to ever work again. At the moment she receives sickness payment and PIP. I am her full time carer at aged 60. I, like a lot of others, am worried about impending brexit and how it may impact pensions, so should she take it or leave it longer? We can manage at the minute but due to cutbacks she may lose some of her benefits, so we may then need it. Her pension, last time I checked was valued at around £100,000. It is not the type of pension that she can just take all as a lump sum. Any help much appreciated

Linton · 13 October 2016 at 10:10AM

Brexit shouldnt directly affect pensions though of course the long term economic effects will affect pensioners like everyone else. Generally speaking it is better to avoid taking pensions until you need them but in your particular circumstances a different decision may be justified.

What sort of pension is it? Defined Benefit or Defined Contribution. If the latter why cant she take it all as a lump sum (not that it would be a good idea to do so)?

Do her health problems reduce her life expectancy?

dunstonh · 13 October 2016 at 10:23AM

Deferred pension indicates a specific type of pension. Do you actually mean deferred? if it is deferred then Brexit will not have any direct influence on it.

Her pension, last time I checked was valued at around £100,000.

That suggests it is not deferred.

It is not the type of pension that she can just take all as a lump sum.

Virtually all pensions can do that indirectly. However, most do not do that as default and its unlikely to be suitable for the vast majority of people to do that.

WillowCat · 13 October 2016 at 11:37AM

Is any part of the 'sickness payment' (ESA?) income related? Do you receive any other means tested benefits?

If so you may find that the pension would reduce the benefit pound for pound.

CEON44 · 13 October 2016 at 12:29PM

Thanks for all the replies. Actually I'm not sure what a deferred pension is. I called it that because she no longer pays into it. It was through her work with Courtaulds group. When the legislation changed recently to allow people to take their full pension in cash I made general enquiries but was told that the type of pension she had couldnt be taken as one lump sum. She could only take max 25% and the rest as an annuity. She didnt want the full sum but was asking asking to see. Her current health problems shouldnt impact on how long she lives, at this point anyway. None of her ESA is income related I think. She gets about £100 per week on this plus about £100 DLA(PIP). I get £62 per week as carer. I also get a small pension of around £100 per week. My wife worked full time for over 30 years until this illness struck. Dont understand the Defined Benefit or Defined Contribution bit sorry

Linton · 13 October 2016 at 1:00PM

CEON44 wrote: »

.... Dont understand the Defined Benefit or Defined Contribution bit sorry

Defined Benefit is often known as Final Salary where your pension depends on your salary and years of service. Defined Contribution is a pension where a pot of money is accumulated in your name to be used to provide an income when you retire. The income you get is proportional to the amount of money in the pot.

The type of pension has a major influence on what you can and should do with it.

dunstonh · 13 October 2016 at 1:19PM

I called it that because she no longer pays into it.

It is not uncommon for people to mix up terminology. Deferred has a different meaning in this case.

When the legislation changed recently to allow people to take their full pension in cash I made general enquiries but was told that the type of pension she had couldnt be taken as one lump sum.

That is not technically true. They should have answered that their pension does not allow it. However, a transfer into a plan that does would allow it. That said, it would not normally be a good idea for most.

She could only take max 25% and the rest as an annuity.

That maybe their only option but it is not the only option. Think of what the company offer as an Apple shop. i.e. they only offer their own product and options. If you want something different you wont get it there. And you wont be told of different things available in other shops either. This is what is happening with the pension.

atush · 13 October 2016 at 5:15PM

Do doulbe check on all benefits that they dont have a svings cap, and arent means tested.

then she could transfer her pension to a place aht allows her to take 25% tax free, then drawdown the rest as required.

For tax purposes, you would not want to take the 75K in one go, as it would be taxed (quite a lot at 40%). If she draws down up to her PA each year (les other income received), she would pay no tax.

xylophone · 13 October 2016 at 8:20PM

Courtaulds had a Final Salary pension scheme, at least until a few years ago.

It seems to me that the OP's wife may well have a deferred DB pension.

Does the OP's wife have a scheme booklet? Does she have a statement of benefits on leaving?

jamesd · 13 October 2016 at 8:48PM

Forget brexit. It's not going to have a material effect and if it is a defined benefit pension it is certain to have no effect.

She has a value. Was the text CETV or its longer equivalent Cash equivalent Transfer Value mentioned around that value?

How is her pension payment calculated, does it say? Is it something relating to her final salary times years worked divided by 60 or some similar sorts of numbers? If so that would mean that it is a defined benefit pension.

For defined benefit pensions there is something called an actuarial reduction for taking the pension early. The level of deduction varies greatly, it can be punitively high or it can be entirely reasonable. To decide it's necessary to know the level of reduction.

For defined contribution pensions they are normally available with no built in reductions starting at age 55. these types would usually mention specific investments names, say "balanced managed fund" or for income generation "annuity" and would never mention CETV.

When you wrote that "take max 25% and the rest as an annuity" are you absolutely certain that the word annuity was used? Not income? The reason is that defined benefit schemes pay an income but have no annuity while defined contribution schemes used to have a requirement to buy an annuity that was abolished around ten years ago. There are also mixed things called section 32 that can have some of the properties of either type.

When you wrote "It is not the type of pension that she can just take all as a lump sum" that would if true mean that it has to be a defined benefit pension like final or average salary. But it may not be true, it might just be an old answer that didn't allow for the changes in law relating to defined contribution pensions that do now allow the lot to be taken as a lump sum - though doing that would be foolish because it would result in a much higher than needed tax bill.

The defined contribution types may come with something called a guaranteed annuity rate. This would pay a rate that is typically two or more times what an open market annuity would pay today and maybe even more than state pension deferring would pay. Such things are normally buyable only within specific date ranges and a huge loss of income would be expected if an annuity was bought outside the times, even more than the usual large loss in possible income taken by buying an annuity.

It's also quite likely that an annuity or anything else that locks in an income for life would be unsuitable for her needs. This is because it appears that the need is for a high drawing rate to compensate for not yet being in receipt of the state pension. Standard retirement annuities are not designed to do that but instead to supplement the state pension by paying a much lower income level for life.

The other resources available to the family also matter a lot. It can be cheaper to do things like equity release for a while then repaying with a lump sum from a pension than taking out the pension at an earlier age. depends on the details of the particular pension.

Biggest challenge right now is trying to work out just what she has because the information you've provided so far conflicts with the law and is not consistent with the other information you've provided. So we just can't know what she has and can't know what to suggest. That's why I described some general things but that's not really good enough.

CEON44 · 13 October 2016 at 9:49PM

Thanks Jamesd. Lot of info there. And to be honest I cant really answer your questions because I just dont know. I'm not that knowledgeable on pensions. She worked for Courtaulds for 24 years, finishing about 10 years ago when the factory closed. So her pension is sitting there from that time. She also has a smaller private pension which she took out in her next job which had about 7/8 years of service. What I do know is she was contacted by the main pension fund about 3 maybe 4 years ago. They were offering to buy her out of the pension with an offer in excess of the value at that time. If I remember it added nearly 20% of her overall fund. It sounded like a good deal, to me at least, but someone she knew in similar situation said no it was better left where it was. I hope she doesnt have to lift it until retirement age, I was just worried that Brexit may cause funds to lose value

Pension now or wait?

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