Stepped Pension

Kontiki

I am due to retire on 31st March at 60 & have had my companies pension options, I have already decided to take the tax free lump sum but I have not completly decided on taking the stepped pension option.
If I take the step up I get an extra £3164 a year until I get my state pension, at that time it says that my pension will be reduced by £4266 a year plus pension increases awarded. From my understanding it means that I lose the amount of the state pension from my works pension but get it back from the state so effectively I stay on the same amount.
I would be interested to hear if anybody has took this option in the past & if they think it was a good or bad move.
I suppose it is a gamble in guessing how much the state pension is likely to rise in 5 years & more importantly how long I am likely to last to get my monies worth.

Debt_Free_Chick

Swings and roundabouts. If you live exactly to the average age that the scheme has used in its calculations, then the total amount of pension you receive will be roughly the same.

It really depends whether you need the extra now from the pension scheme, to manage your finances until the State Pension kicks in. Even if you don't need it, it might pay you to take it and then put it in a savings account, so at least you get the interest!

I am fairly sure that the amount they deduct when you get to 65 will be exactly the basic state pension at that time (but ask them to confirm). If so, then the amount by which the scheme pension reduces is exactly matched by the amount you get from your State pension. £4266p.a. is the current rate of basic state pension.

HTH

EdInvestor

IMHO the more you can extract from a pension scheme and save in an ISA for tax free use later, the better.

Since you won't lose anything by taking the money now, why wait?

I suppose someone may be along in a minute to discuss age allowance of course....

Debt_Free_Chick

EdInvestor wrote:

IMHO the more you can extract from a pension scheme and save in an ISA for tax free use later, the better.

Since you won't lose anything by taking the money now, why wait?

I suppose someone may be along in a minute to discuss age allowance of course....

In general terms, I agree with you. But it's the "jam today" principle. S/He gets more pension today, at the expense of less in the future.

For someone with no other income, more today may be the best option. But if, for example, Kontiki had a part-time job, then the extra pension today may well result in him/her paying tax.

As I say ..... I generally agree with you, but I think there are wider issues to consider

EdInvestor

Hi DFC

IMHO the more you can extract from a pension scheme and save in an ISA for tax free use later, the better.

Jam today was not what I had in mind.

One of the big risks a pensioner faces is that tax rates may change to his/her disadvantage, which will affect any money in a pension, but not in an ISA.So the more money you can get out of the pension, the better IMHO.Once you've paid the tax, the risk has gone.

Of course individual circumstances and attitudes will vary.

Pal

The tax rate risk is actually fairly minimal: By far the most significant factor is how long they live compared to their expected mortality as assumed by the scheme's actuary.

If they are in good health the poster may be far better off with the pension.

Of course health has a habit of deteriorating....

Kontiki

Thanks for the replies, I think most peoples opinion is the same way I was going towards & that is take all the money I can up front, my wife will get her state pension about the same time I would be due my state pension (not quite the full amount we will need to work out if it is worth her buying the extra years back).
I don't know if other companies are the same as mine (Airbus UK) but there is no help / advice for anybody retiring. It seems that the only one who takes any interest is the person retiring. I remember in the past there was some sort of retirement counseling session but now you are left to find out everything yourself.


Ed
'If you had your life to live over you'd need a lot more money'