I want to take my company pension at 56 - any real reasons why not?

ratabgs21

I am thinking of taking my pension (not lump sum cash) at 56 rather than wait until the company's normal retirement age of 62.

Of course, there is a penalty. I've done a lot of due diligence with a spreadsheet on this, with columns from 2011(56) to 2035 (80). Then pop in your pension forecast as at 56 in row1, then stagger row 2 for taking pension at 57 with a slightly higher monthly paycheck etc.

I found that at 80, I had lost just £20k by taking my pension at 56 over waiting, which = £800 per year. Not bad for having that cash up front.

However, even though I think I've checked my maths, I still worry that
there may be another totally unconnected reason why I should wait.

Any thoughts Guys?

dunstonh

Not just penalty needs to be factored in but also loss of accrual of another year of service (assuming yours is final salary as you are not taking lump sum - which can be sensible on final salary schemes but daft on most money purchase).

If you are finishing work at the same time then you have loss of that income as well. If you are not finishing work then you need to consider if the pension and the employment income will put you into higher rate tas. (you dont say if you considered tax or not on your spreadsheet).

jamesd

Why do you want to take it? What is your objective?

Squire_Fulwood

I am biased in your favour. I left work at 47 years of age after 30 years working for the same firm. I got enhancement of six and two thirds years but the pension did not come into payment until I was 50. It's immaterial that this was against pension rules and was I was later compensated for it. The fact remains that I did not get paid for a couple of years until I was 50. My pension is index linked and at 65 was augmented by the state pension (basic due to contracting out).

Would I do it again .......every time.

A bit of close order planning in recommended but if you are running a spread sheet you seem to be doing that already.

atush

What other income will you have? You run the risk of paying more tax on it if you take it now and you are in receipt of other income.

Do you need the money (or just want it?). Generally, if you don't have to take it, you will be better off waiting to take it as you will get more income later.

traineepensioner

Hi ratabgs21,

Welcome to the forum.

Are you planning on retiring at 56 or do you intend to continue working for the same company?

If retiring, go for it and good luck
However, if you plan to continue working you have to consider the amount of extra tax that you'll be paying and the loss of any "death in service benefit" that may be payable to your dependents . You'll also be missing out on the employers contribution (free cash).

A big decision!...good luck on whatever you decide :think:

Loughton_Monkey

There are so many factors to this. As a very general rule, it is usually very unfavourable to take a 'Final Salary' pension early. This is a complex subject in itself, but it usually surrounds the scheme having to make individual assumptions for an individual, and these usually end up being very 'cautious' in favour of the company [scheme]. It also includes that factor that by taking it early, you have lost forever the 'chance' [high in my opinion] for increased mortality adjustments. [When actuaries re-assess mortality, this results in a large 'step change' in the funding requirement, and thus any individual's 'share'. This is of no consequence for those who retire at normal date since their amount is guaranteed. But early retirees will have been 'dealt with' at the previous mortality rates and will never see an increase.

That apart, we don't know what assumptions you made. Wrong assumptions can prove almost anything.

As already mentioned, if by taking it early, you are continuing to work, but are effectively "withdrawn" from the scheme and hence not accruing more years, then this represents an enormous cost. If you are referring to a 'deferred' scheme, this doesn't apply, but on the assumption you are still working somewhere else, then have you fully counted the differences in tax?

Family circumstances matter too. A deferred pension is usually much more valuable to your wife if you die before crystalising it. After taking it, she receives (usually) only 50% after your death.

At the end of the day, a lot depends upon what you are trying to achieve, and you haven't really said that. If you simply wish to 'chuck it all in' and retire early, then this is a totally different scenario than wanting to cash it early simply to boost your income while still working. Even then, both scenarios need to be considered against many other financial assets you may/may not have, in case there are more efficient ways of achieving the same thing, only cheaper.

ericonabike

Interesting! I'm in a comparable position, but I'm being made redundant at the age of 55. I can take my pension now, reduced by 25% from what it would be at age 60. I've worked out, similarly to the OP, that my 'breakeven' age is 74. If I died before then I'd have won, as it were, by having taken more money out of the pension scheme than if I'd waited until 60. And to be honest I'd rather have the money at the non-dribbling stage of life if I can!

Doing this takes the pressure off getting another job, and means that I can boost my income considerably if I want, just by taking a lower paid job. And if I did that I could even invest the pension money. I appreciate I've not taken tax into account but I think it's the right choice in my circumstances. I'd be interested in the OP's view and yours!

Loughton_Monkey

ericonabike wrote: »

Interesting! I'm in a comparable position, but I'm being made redundant at the age of 55. I can take my pension now, reduced by 25% from what it would be at age 60. I've worked out, similarly to the OP, that my 'breakeven' age is 74. If I died before then I'd have won, as it were, by having taken more money out of the pension scheme than if I'd waited until 60. And to be honest I'd rather have the money at the non-dribbling stage of life if I can!

There is no 'right or wrong'. Individuals all have different circumstances. And (as I said) there are so many factors and assumptions that you can make.

In the past, I have made similar calculations, but I probably did them a different way. My approach to your own specific figures would have been to assume pension escalation [some FS schemes are still at RPI max 5%], which would allow me to show the two cash streams: 1. taking 75% pension now, and 2. taking 100% pension in 5 years. I would then do a third projection of how my savings would dwindle over those 5 years (by living on savings), and subsequently how long it would take to 'replenish' those savings to an equivalent level using the extra pension income of 100 units instead of 75. Each cash stream would be adjusted for tax.

ericonabike wrote: »

Doing this takes the pressure off getting another job, and means that I can boost my income considerably if I want, just by taking a lower paid job. And if I did that I could even invest the pension money. I appreciate I've not taken tax into account but I think it's the right choice in my circumstances. I'd be interested in the OP's view and yours!

In many cases (including my own) the "joy" of retiring and moving all the stress cannot be understated. This explains why it is a very attractive option. Ultimately, however, any severe restraints in income would tend to 'grate', which is why I thoroughly recommend that if part-time jobs - or lower paid jobs - need to be considered, then they should be taken straight away. To wait, say, 3 to 5 years and then decide that money is not going to last is far more difficult than not having taken a break.

In the circumstances you describe [55, redundant, with some pension rights, and presumably some saving and/or redundancy money] then the job is quite 'simply' [but maybe a complicated spreadsheet!] to decide if you can retire or not. The way you choose to 'cut' your asset - e.g. by taking pension now or leaving it to 60.... lump sums or full pension... - may affect things at the margin, but are unlikely to change the fundamental decision.

But it is always well worth the while mapping it out in detail to optimise total cash flow.

Bigmoney2

Ok, I took early retirement at aged 50 due to redundancy, so here are my thoughts which may or may not apply to you.
Will the pension give you enought to live on, remember it is taxed, but you will not pay NI or pension contributions. I loged my outgoings for approx. 12 months before retiring so knew accuratly my outgoings. Some savings/lump sum are advisable for unforseen things e.g. car repair/replacement, new washing machine/TV etc.
Will you still get death in service benefit (I do till age 65) or will you need to buy life insurance.
Will you loose other perks e.g. private health insurance.

Bear in mind higher heating cost if at home more, higher petrol costs if you end up using car more for days out etc.

Other things to think about, do you have a plan as to how you will spend your days? You need to fill 40 hrs a week.
Will you miss the company, your friends may still be working and any groups you join will probably be with people a lot older than you probably in their 60's and 70's.
It can be difficult to motivate yourself as things can always wait till tomorrow and never get done.

Obviously there are a lot of unknows from your post, do you think you will get another job, do voluntary work, as once away from work it is very hard to get back into the routine, and not much work around at the moment.

Good luck with your decision. I haven't regretted leaving work, but there can be times when it is difficult and isolating, but you do feel like you get your life back, which is priceless.