Take pension early?

debrathezebra_2 · 23 September 2014 at 9:58AM

Good morning all, I’m new to this forum and looking for advice on taking my pension early.
This is my background:
Age 57.
Pension scheme retirement age 60,
Predicted pension at 60 is 30K.
Penalty for taking pension early is approx 5% reduction per annum.

I am ready to resign from my long serving job (37 years) as I have been offered a new role that is less pressure, more interesting but less pay.

My question is this,
If I can manage on the new salary, should also consider taking my pension early and investing it in something like a stocks and shares NISA (mine and hubby). Is there an advantage to be a ‘pensioner’ in the scheme and using the money to build up a cash pot rather than waiting another tree years to draw it?

Thanks

Your_Hero · 23 September 2014 at 10:26AM

debrathezebra wrote: »

Good morning all, I’m new to this forum and looking for advice on taking my pension early.
This is my background:
Age 57.
Pension scheme retirement age 60,
Predicted pension at 60 is 30K.
Penalty for taking pension early is approx 5% reduction per annum.

I am ready to resign from my long serving job (37 years) as I have been offered a new role that is less pressure, more interesting but less pay.

My question is this,
If I can manage on the new salary, should also consider taking my pension early and investing it in something like a stocks and shares NISA (mine and hubby). Is there an advantage to be a ‘pensioner’ in the scheme and using the money to build up a cash pot rather than waiting another tree years to draw it?

Thanks

I'd say it's best to leave it until 60.

Your pension plus your new salary will most likely push you over to higher rate tax so the money you actually get isn't as much as you think.

If you leave it deferred, it is guaranteed to increase in line with inflation or some other fixed rate, and no actuarial reduction (a 15% uplift compared to age 57). A stocks and shares ISA won't be able to do this for you.

atush · 23 September 2014 at 10:26AM

It all depends on your other circumstances such as your health, savings and investments outside of pensions (ie do you have any and where are they invested) and does your pension have a lump sum coming? Does your OH have a good pension?

Generally speaking, you dont take a pension if you dont need it. AS that just means you will pay tax on it.

In your case, you look to be paying tax in retirement of as least basic rate once retired. Would taking the pension put you into HRT? It will be 21K.

So if your health isn't great, and you have no savings in tax free environments like S&S isas, then I might take it. Invest any LS into S&S isas and save the income as well into a new DCpension? If in good health, and you have savings and investments, i would leave it.

mgdavid · 23 September 2014 at 11:10AM

Am I correct in guessing your pension is a DB (final salary type) scheme? Do you have the option of a tax free lump sum on taking it? Do you have debts (mortgage etc) which the lumpsum would pay off?
Is there a partner with income or pensions to be considered? Do you enjoy good health i.e. expect to live another 30 years at least?
Far too many unknowns to be specific.

debrathezebra_2 · 23 September 2014 at 12:34PM

Ok, thanks for the advice so far. I had been wondering if there was a formula to check if taking it early and saving it was better than taking it at 60?
e.g.
Nett at 60 = £100 x 25 years life expectancy
Nett at 57 = £80 x 28 years life expectancy (save the £80 between 57 and 60)

What is the break even age?

I now think this is a complex calculation with too many parameters to calculate an good answer.

Other factors
No debts / mortgage paid
Hubby pension small - 10K
Yes we have savings

atush · 23 September 2014 at 4:06PM

Not enough detail to say.

kidmugsy · 23 September 2014 at 5:55PM

debrathezebra wrote: »

looking for advice on taking my pension early.
This is my background:
Age 57.
Pension scheme retirement age 60,
Predicted pension at 60 is 30K.
Penalty for taking pension early is approx 5% reduction per annum.

I am ready to resign from my long serving job (37 years) as I have been offered a new role that is less pressure, more interesting but less pay.

My question is this,
If I can manage on the new salary....

If you can manage on the new salary that's probably your best bet. You can look on leaving the pension for another three years as choosing to make an investment that is very secure, and pays better than 5% p.a. plus index-linking. That's a very attractive investment: you won't equal it with a NISA. If you have a fancy to continue working at 60, and if there is no reward for leaving your pension undrawn, that will be the age to take it at. If doing so pushes you into the higher rate tax band you can always avoid the tax by making a further pension contribution to a personal pension of some sort. The new flexibility with which you can access pension money would make that a good deal.

Thrugelmir · 23 September 2014 at 11:29PM

debrathezebra wrote: »

e.g.
Nett at 60 = £100 x 25 years life expectancy
Nett at 57 = £80 x 28 years life expectancy (save the £80 between 57 and 60)

In simple terms if indexing was 2% per annum compound. Your £80 would be £84.90 in 3 years time. While your £100 would actually be £106.12.

After a further 25 years the figures would be £139.29p and £174.10p respectively.

Take pension early?

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