Flexible Retirement

Brenny

Hi

I have recently received advice which says that, if I take flexible retirement (i.e. go from f/t to three days a week and draw on my pension) I would end up with virtually the same income as I receive now, whilst working two days less. This would also give me more time to pursue my other interests, which hopefully will also allow me to earn additional money!!

I would then work the three days, paying into a new pension scheme, for the 10 years until I am 65 before I would be able to draw the new pension (my current pension scheme would allow me normally to retire at 60).

To be honest, it seems too good to be true so can someone tell me what the downside here is?

Thanks.

JOHNGT

What sort of pension is your old pension and what sort of pension is your new pension. If your old one is a final salary scheme, at your age it costs about 35% of pensionable salary to buy 1 year (1/60th). If you come out of that scheme and go into say a money purchase scheme with a 10% contribution then the new pension is worth much less.

By taking your pension early, it will usually be much smaller than it would otherwise have been if you had waited to age 65, so the downside may be that you will be poorer when you fully retire at age 65.

So, you need to know, what your pension would be at 65 if you kept working full time and didn't draw your pension. Compare that to the early retirement pension plus the projected pension from the new pension scheme.

Brenny

Thanks John.

The pensions are still both final salary schemes (local government). There is a difference of around £6,000, which could add up to quite a lot of money. But I will be drawing around £90,000 over the 10 years - hmmm. Quite a few sums which I need to do....! Still sounds good though!

Loughton_Monkey

You don't get 'something for nothing'.

To work this out properly, you should estimate what your [Final Salary?] pension would give you at age 60 if you condiued full time. This would provide a certain pension income. To retire from this sort of scheme 10 years early tends to give a very substantial decrease. Think about it. That scheme is going to receive 10 years fewer contributions [of possibly 25%-ish?], and it also has to pay the pension 10 years longer.

Of course, if you add that significantly lower pension, and add it to 60% of your current salary, then it could well provide a net income very similar to now. But you are paying into a far less lucrative pension. When you get to age 65, the combination of your existing lower pension, plus the new one, would be (I fully expect) very much lower than if you had worked full time to 60.

You need to be very careful. I sense that your employer is offering such a scheme in a deliberate attempt to control the exhorbitant cost of your final salary scheme. As you probably know, these schemes require huge funding - and this tends to increase with age. The offer you have received is 'clever' from their perspective, since it is saving them a huge cost to support your FS scheme.

If you have the option to continue full time to 60, then in your position, that's the option I would be taking. I would be most reluctant to 'mortgage' my future gold-plated pension for the sake of two days off a week.