Early Pension Dilema

Marg

Can any one help please?

My friend has recently taken an early retirement package (age 53) from a big national (formerly government) company but the terms don't seem to be very generous and he is trying to work out whether to take a reduced pension & lump sum now or defer until age 60. The reduction is about 27%.

He can work out the basic calculations of income from any lump sum invested plus pension if he opts to take the money now - v - potential income at 60 but worries that he may be missing something by not fully understanding the rules (or even if there are any rules!) What about tax etc?

Can anyone offer any advice please?

Also - If he went to his Bank are they likely to be able to advise him? An independent financial advisor? How to find a good one? Are they truly independent?

It seems like a minefield so I would be grateful for any of your thoughts on the issue.

Thank you

MikeJones_2

Hi Marg,

Marg wrote: »

My friend has recently taken an early retirement package (age 53) from a big national (formerly government) company but the terms don't seem to be very generous and he is trying to work out whether to take a reduced pension & lump sum now or defer until age 60. The reduction is about 27%.

I'm curious: why did he take the early retirement package before he decided to investigate his pension options?

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

chesky369

If you take a pension early, it can be reduced by around 4% for each year, so it would seem the calculation is not incorrect. It seems by what you say that he's already taken 'the package' so are you sure he still has the ability to say when he wants to start taking his pension?

Sounds to me as though he needs an IFA who specialises in pensions and he should keep well away from any banking 'adviser'; they're not advisers, they're salespeople.

Marg

Mike - I'm not sure - I will try to find out - he was under a lot of pressure at the time (work, his own & his childs health) & I'm sure that was the reason he decided to take the offer but from what you say, I wonder if maybe there was an intial payout and some sort of deferrment on the balance? He has spoken recently about deadlines & it taking 3 months to get 'the money' released..........

Chesky - That's what he was afraid of.....I know there must be a code of conduct for IFAs but without knowing anyone who's used one how do you tell who's good & who's bad?

Debt_Free_Chick

Marg wrote: »

I know there must be a code of conduct for IFAs but without knowing anyone who's used one how do you tell who's good & who's bad?

In my view it would be premature to involve any other party without understanding what the rules of the pension scheme provide. The first point is to ask the scheme admininstrators how the pension was calculated and to confirm which rule(s) of the scheme were applied.

My own view is that early retirement reductions are far more likely to be in excess of 6%pa rather than 3% - but it rather depends on the calculation. It could be that he is getting special terms and that the reduction applied to his pension would be far more, if he were taking it voluntarily rather than as part of a redundancy package.

He needs to discuss this with the pension administrators - and/or the manager who made the redundancy offer. Usually, special early retirement terms following redundancy require approval, so the person making the offer would know whether or not that approval has been given.

Get him to talk to his employer about the "special terms" first - although I think that a reduction of 27% is relatively generous.

CLAPTON

if he wants peoples views he needs to post up the figures and his general situation... without them any advice is worthless.

MikeJones_2

Marg,

As Debt_Free_Chick says, your colleague needs to do a comprehensive pension analsyis on his benefits. This will include thinking about issues such as:

- risk
- guarantees
- dependants benefits
- his health, including his family's health history
- his dependants' health
- security of his existing pension
- pension increases throughout retirement (up to and after NRD and where different, State Pension Age)
- the advantages and disadvantages of taking a cash lump sum from his pension scheme (and the alternatives)
- taxation
- personal allowance (now and after State Pension Age)
- the likelihood of his falling into the state benefit system

There are many more considerations to think about regarding his existing arrangement, but as Clapton says, comments (other than generic statements like mine in this post) are going to be difficult to provide without knowing more specific details.

Probably not what you wanted to hear, but I hope my reply helps your friend to reflect on what he has (and what he may not fully appreciate).

Kind regards,

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser.

EdInvestor

Often in big privatised companies, a useful source of pensions advice can be the relevant union officials.

DRS1

You mentioned his health issues - presumably he did not retire early on ill health grounds? If he did then he should ask if it is right for there to be any reduction for early payment at all.