Pension options

joel5200

Due to me changing employers I have the option to take my company pension from my previous employer early (I am currently 54 years old) and have been given the following figures - Pension of £10,718 per annun now or Tax free lump sum of £52,800 and reduced pension of £7,920 per annum.

I currently have an o/s mortgage of £60,000 which runs till Feb 2011, with Intelligent Finance ( interest rate 7.0%) on an offset basis and would like people's opinions as to wether I should take the larger pension, or the smaller one with the tax free cash sum, and then if I take the tax free sum should I pay off the majority of the mortgage, or leave it in the IF account to be offset?

I would mention that my salary with my new employer is approx £32,000.

Thanks

dunstonh

What are the penalties for taking it early compared to taking it at normal retirement age (NRD)?

Which option works out best financially when you compare the two options (now and at NRD)?

nrsql

Don't see any reason to pay off the mortgage rather than offset it.
I assume you have a lot of money offset at the moment which you have plans for in the future otherwise that looks like a very expensive mortgage - I would have thought you would just add the tax free lump sum to whatever you are saving the offset amount for.

Retired_I.F.A.

for £2798 a year plus presumably rpi capped at 5% escalation and a 50% spouses pension your getting £52,800 In my book you'd be mad to buy that pension and stupid not to sell it.

Look into transfering the final salary scheme into a personal pension where you can take the same tax free lump sum but leave the rest invested and drawdown an income from it when you'll need it in retirement. Taking the pension now either from the final salary scheme or as drawdown or as an annuity will put you in the 40% tax bracket, at retirement it wont..

Keeping the mortgage which is costing you 7% only makes sense if you cant afford it which presumably you can whilst working and when your savings/capital/pension fund is yielding and expected to yield more than that 7% in the long term.
At 54 you'll be invested for the next 30 years almost if your of average health and a 7% expectation is pretty conservative, I'd be inclined to leave the money invested and not repay till you need to, and look elsewhere for a cheaper interest only mortgage as 7% is nothing special.

fg22

Retired_I.F.A. wrote: »

for £2798 a year plus presumably rpi capped at 5% escalation and a 50% spouses pension your getting £52,800 In my book you'd be mad to buy that pension and stupid not to sell it.

I've just looked at http://www.fsa.gov.uk/tables and it appears that for a 54 year old male, £52800 would provide a single life annuity with a 5 yr g'tee and RPI indexation of £1740 pa.
I realise the lump sum would be tax free but I don't think its obvious that it should be taken.

As dunstonh said the important thing is to see if there is a reduction for taking the pension early.

If you do take it early I believe you could continue to make pension contributions (though not to your old employers scheme) and so bring your taxable income below the higher rate band.

Retired_I.F.A.

I don't think its obvious that it should be taken.

It's not but it is in my opinion as I said.

Same site = £1536p/a when you include 50% spouses and assume she's 3 years younger which is more typical of a final salary scheme.and age gap of a couple

A purchased life annuity would do better as if the same rates were available only the interest element of the annuity would be taxable compared to all of the FSS pension or annuity. But even so that just shows what poor value for money annuities are as the underlying interest rate is around 4.7%

I'm not saying the FSS pension offer is poor it's obviously better than the above figures if we are talking like for like and your right it's not so obvious to all which is why i said "look into" Once one has then my opening line mad to buy idiot not to sell would be true i'm sure.

The final salary schemes annuity is not based on gilts at 4.7% but on a rate what they believe they can achieve with investing, get a reasonable transfer value which apparently nowadays are based more on gilt yields thus resulting in higher transfer values than in the past and have that money invested yourself in a drawdown plan and effectively there's no difference, except you can draw 120% of a single life annuity as income, have better death benefits, and control of how much if any to drawdown and where it's invested. The tax free cash might differ some though, again reason to look into it.

joel5200

I now have the final figures from my previous employer as follows;

If taking pension now either Pension of GBP 11,361 pa or Tax Free cash sum of GBP 59,288 and pension of GBP 8,893.

If preserving pension with previous employer - total yearly pension at date pensionable service ended (1 July 2008) GBP 17,355.

For both senarios the amounts increase by 5% per annum.

Is there a formula or website that I could use to calculate how long it would take for me to be better off by not taking the pension now?

Also any other thoughts that anyone has would be much appreciated.

Thanks