pension quandary

scarrow

I am currently full-time employed with second final salary pension running (11 years) to finish at 62/2015 which I will not touch unless made redundant/retire (4% per year penalty).

Aged 55 and recently quoted lump sum £49195, annual £7379 (less 20% tax £5903) from deferred (11 years) final salary scheme. Annual review in Jan 2009 after which I may take pension. I am trying to find out whether it is better to release this money and invest myself or leave it where it is until 2014.

The theory! Example: Monies released and re-invested by myself until end 2014 (6 years). Own rough calcs suggest: 0% interest and min 3%/RPI rises on annual pension approx £76k and at 5% net approx. £110k.
At normal retirement (62/2015) with no penalty, lump sum may have risen by £3k annually to give £70195 plus 3%/RPI rises on annual pension.
Figures suggest by taking the money in 2009 and investing until 2014, I could be up to £40k better off!!!
Always understood it is in own interest to leave pension untouched until retirement. However, this is just about the money and wanting to build as big a pot as possible prior to redundancy/retirement.
The questions I need help with are: Would I really be better off taking the pension in Jan 2009? What would I miss out on by taking the money? Can I do even better? Any other options?
Am I dazzled by the money and missing something blindingly obvious?
Thanks in advance

robnoblewarren

scarrow wrote: »

The questions I need help with are: Would I really be better off taking the pension in Jan 2009? (1) What would I miss out on by taking the money? (2) Can I do even better? (3) Any other options?
(4) Am I dazzled by the money and missing something blindingly obvious?
Thanks in advance

(1) In theory, tax-favoured growth inside the pension, and again in theory the time saved in not having to manage your money.
(2) Find out what kind of pension you can get at 56, 57, 58.... and you can fine tune your computations to end up with optimal amount of income. You may find they have a weird way of computing the reduction in pension for taking it early.
(3) Hm. Well there are three computations here which you would expect an independent wealth manager to do (a) lump sum or full pension (b) which year is best to take it (c) what difference it makes to the achievement of your financial targets, which requires a financial model to be built of your future life and tested with both options. Example - client coming out of Fonseco asks same question - answer 44% chance of achieving his lifestyle if he takes lump sum, 80% if he takes full pension, because of widow's pension, current risk/return in markets, and low interest rates. You can get this kind of report in a financial review from wealth firms who don't take commission.
4) Yes. Blindingly obvious (a): Don't imagine your defined benefit pension isn't already in deep trouble - check their accounts and that may nudge you into taking the full pension as soon as you can to reduce the possible and avoidable impact upon you of pension default. Blindingly obvious (b): well, not blinding, but despite above warning, if your second defined benefit scheme (you must be one of the last) allows you to buy added years and you've checked their accounts, ask what it costs to buy added years [funding it with the pension you've just released]. Sometimes (e.g. DSS scheme) you get a result which is 80% higher than you can get by simply saving the money.

Question for you: our Review Service (not promoting it here, so I won't tell you which firm unless you ask) is designed to show people what options they have to achieve their financial independence. Impartial, no commission, no agencies, just straight advice of the kind above. At £450 for a meeting and report, with a guarantee not to pay if you don't get value, would you buy it? Once again, not pitching for business, just trying to figure out if people think they don't need such advice so they needn't bother.