Final Salary Pension Early Payment and Lump Sum

Andyclockwise

Hi, forgive me if this has already been covered, but couldn't find anything similar on search. My situation is:

• Aged 53 recently divorced and need capital to fund house purchase with new partner putting in equal amt from sale of her prop. My ex-wife kept the marital house and I kept my pension (but no capital) as it had a CETV of £335k at time.
• Am working and have enough income to cover current outgoings.
• My pension is a deferred final salary pension (in a UK Bank scheme) with 23 years accumulated service, left the company in 2000 due to redundancy. Pension payable with full benefits from age 60
• Under terms of redundancy am able to draw reduced pension and lump sum from age 50.
• I could get a lump sum of now of £76k and annual pension £11.5k or £15.6k without lump sum.
• If I waited until age 60 the full pension would be £21.5k approx index linked.

I am considering starting to take pension now to provide the lump sum and then save the residual pension in an investment of some sort. I don't anticipate stopping work until at least 60 or probably later (I am a contracting project manager and the pension income would provide a useful backup in lean times).

I would appreciate any guidance from the forum as to what I should consider before opting for this choice.

atush

Bad Choice- and i think a big mistake.

I would just save for a few years, and she can too. Did you build any pension up in the years after 2000? If not, can you really afford to rob your future like that?

Andyclockwise

Why would this be a bad choice / mistake - Would you be able to give some analysis to support this statement? I have no other pension provision apart from State Pension of course.

atush

Because you are robbing your future, to pay for today?

At 53, you have no other savings or assets to your name other than your pension? No cash, no ISAs etc? No pension paid for the last 12 years?

Not a good place to be in, but a FS pension that means you have NO risk and it will increase over time is a precious thing. To take this money (even of you could- I would have thought the trustees would not let you take it this young) and bring that Protected tax free money, into an unprotected environment where it can dissappear (in the case of redundancy, relationship breakup) and be worth nothing is very unwise. If you bought a house with this money, then lost your job and lost the house the money would be gone.

Then there is the commutation rate. Ie the amt of pension yo lose for each 1000 of lump sum you take? I haven't done the math on yours, but you should.


Then there is the fact you would have to pay tax on this pension now- what is your tax rate? Is it HRT?

Given your age and lack of savings and newer pension(so we can only assume you will carry on that way and not save a huge amt more) I can't think that you will be able to live on the lower pension amt.

mgdavid

so you retire at 60, you will have bank pension 21.5k (and 6 years to wait for state pension circa 7k.). 21.5k is not going to be living in luxury is it, especially if you still have a mortgage, it will be close to penury. IMO you need to get your head around the concept of working until 66 minimum. Fortunately being a project manager you are ideally placed to keep working (I'm one too and being older than you have thought this through before).

atush

But he won't be getting 21K, as he wants to take it early to buy the house with the new woman and then get only 11.5K?

What do I know, but not sounding the best plan.

Andyclockwise

To clarify some points:
1) I have confirmation from the trustees that I can do this if I wish.
2) I am 54 not 53 (and obviously going senile!)
3) I have some rainy day savings approx £30k but rather not use this except in emergency
4) I have a Sipp with just 1k in it at present, which I had intended to build up more savings into, but costs of divorce and 3 kids (2 in Uni) have prevented this happening.
5) My partner also works and has own pension provisions.
6) Intend any mortgage to be low to minimise chance of default as both of us working.


Thanks for replies to date, it does help give some perspective.

It would be really helpful to have some hard financial commentary assuming I were to actually go ahead, For example:
- what kind of investment vehicle to consider for the £11.5k p.a assuming time period of between 8-12 years before drawdown
- Would there be any merit in transferring the CETV to another provider and taking benefits from age 55 (in 9 months time).
- Would it be worth getting advice from a pensions advisor - what could they bring to the table?

srcandas

Andyclockwise wrote: »

even if they are a little "preachy".

They're always a bit like that here Andy but they mean well. And to be fair the fixed 'one for all' views do make you consider the options.

Some if they had their way would have us working 16 hours a day, stashing every penny, not enjoying life,just so at the age of 66 we would be able to eat fillet steak every other Thursday - if we were not dead through the stress

Others would have us fritter every penny so that we could live off benefit

And others would have us invest a pound and taking their investment advice we would be rich in 5 years!

Sadly all you can do is get the spreadsheet out and do financial models based on the asumptions you can gleen from numerous sources (and that's not easy). And then shop around for an IFA or whatever when you have done the leg work. I did that and have found what I needed from an IFA was minimal and now have one who will do a review for nothing. That said he will probably make money later which is fair enough.

I just think today you have, tomorrow may not exist. Yes you need to plan for the future but not by burning your happiness today.

Sorry Andy getting on my soap box. Just wanted to balance the ship of opinion. Good luck and enjoy. :beer:

Andyclockwise

srcandas wrote: »

I just think today you have, tomorrow may not exist. Yes you need to plan for the future but not by burning your happiness today.

:beer:

Thanks srcandas you've summed up very neatly where my head is at the moment. I had amended my post to take out the "preachy" word, as I do appreciate all the comments, even the slightly "judgemental" ones.



Some other relevant factors that are spinning around in my thoughts:

• It seems a good idea to have some property in my portfolio, with so much uncertainty in the financial world. At least bricks and mortar are tangible, and I need somewhere to live, or pay dead money in rent.
• It may be safer to have a pension in payment, and some cash in hand now rather than the promise of one in the future, given that pension schemes are not absolutely guaranteed. Mine is in defecit, although they say they have a plan to resolve it, who knows what will happen.
• How much do I really need in retiremement? We plan to sell up and go around the world in a motorhome, earning keep doing alternative therapy or building websites. Savings built up between now and then, and residual pension could well be more than sufficient.

atush

Didn't mean to be Preachy or judgemental- that is just me being Worried FOR you and your future.

You have 30K, I am assuming your partner has savings. Use this now for your deposit, keep building your sipp and more emergency savings after and leave your pension to grow for now. you could always change your mind and take early retirement later- using any lump sum to reduce the mtg, or using the higher pension to live on if made redundant. To take the pension now, would mean in all likelyhood it will be taxed much higher (even perhaps HRTax?) so don't take it unti you really really need it.

And each year you leave it, the pension sum will grow. Even leaving it for an extra year would help.

I still think that course of action is very unwise, but should you do this I would invest all of the 11.5K- at least half into a new pension or your Sipp and using the other to help fill your ISA allowances each year.

i do not advocate total abstenence and no fun, but in your case at your age with so little behind you (and 2 in Uni- I have twins starting in Sept and one in now so understand the pressures) you really need to be FAR more cautious and not rob your future to pay for a house today. Smaller house, smaller deposit, save for a year etc.

Hopefully prices will drop a bit while you save another 10-20K?

xylophone

I'd be very disinclined to move your deferred FS salary to another provider - you'd have to get an IFA to sign it off and you might find it difficult to find one who would.

If you were not now in a new relationship, you'd still be in the position where you'd have to find somewhere to live. In view of the fact that you are unwilling (wisely, in my opinion) to use your emergency stash, you'd still be considering taking your lump sum to fund a deposit.

As things are you have the opportunity to buy a better property because you have someone to go halves, as tenants-in common presumably.

Incidentally, don't forget to write a new will.

Do you have ill-health insurance - if not, might be time to look into it.

It might be best to try to buy within your price range and without a mortgage.

You and your partner have your own pension provision, state pension provision, jobs and savings.

You could save the whole of your (presumably index-linked) £11.5 k into ISAs/your SIPP for the next several years.

I think your proposal could work.