Early Pension payment

disenchanted_2

I recently received a letter informing me of proposed changes to my pension scheme due to the need to make it more sustainable in the future.
The review is ongoing, but I received a pension benefit option form giving me the option at age 60 of either a lump sum of £21,400 and an annual pension of £7,000 or a lump sum of £40,700 and an annual pension of £6,000.
I am now being forced to leave work and collect my pension early at age 56. This would reduce my pension benefits by 17.9% giving me either a lump sum of £1800 and a pension of £6000 or a lump sum of £33400 and a pension of £5000.
My question is, which option is most advantageous and is the lump sum taxable.
Any help would be greatly appreciated.

ceridwen

I can understand that if you chose to retire early (ie before 60) that your pension would be proportionately reduced accordingly.

....but you say you are being "forced to leave work". Can you clarify what you mean by "forced" (is this redundancy or ill health retirement or something - rather than your choice).

LindsayO

The other thing to consider is whether the letter gives you all your options, or just a couple of illustrations. In my scheme, for example, that you can take your pension as zero lump sum and a larger yearly payment. Which option is best depends on a number of factors. Will the yearly payment increase with inflation? Do you have savings or othe ,means of support? Do you think it likely that you find another job? Do you have a mortgage or other debt?

Andy_L

The lump sum is tax free.

You are getting £19.30 of lump sum by giving up £1 of pension. Whether that's a "good deal" depends on:
Is it a fair rate, ie could you turn £19.30 of lump sum into £1 of pension, not forgetting index linking & a dependants pension.
and how much do you personally value the flexibility of the lump sum over the pension eg you can use the lump sum to pay for a new roof/boiler/sports car/speed boat/clear a mortgage or provide a tax free income.

As Ceridwen says what do you mean by "forced to leave work" generally if you aren't choosing to take a pension early then there is less/no reduction for taking it early