Taking Pension Early

grocery_2

I am 55 and worked for a company from 1978 to 2007 before being outsourced. My pension from during that time is now available should I wish to take it. I am still working fulltime and will probably do so for another 3 or 4 years so the income from the pension is not required at this time. My question is would it be better to take the pension now (25% lump sum plus annual pension on remainder), or wait until I actually retire. Any suggestions would be appreciated, thanks.

jem16

grocery wrote: »

Any suggestions would be appreciated, thanks.

General rule of thumb is if you don't need it don't take it as it's bringing it from a tax-free environment to a taxable environment.

However much depends on the type of pension. If it's final salary do you receive any more benefit from leaving it longer?

If it's a money purchase scheme, it's probably a more clear cut decision as leaving it longer will allow it to remain invested for longer.

xylophone

Deferred FS pension? http://www.pensionsadvisoryservice.org.uk/workplace-pension-schemes/final-salary-schemes/revaluation

Will your pension be subject to actuarial reduction if taken at 55? http://www.pensionsadvisoryservice.org.uk/personal-and-stakeholder-pensions/stakeholder-pension-schemes/minimum-retirement-age

Will taking the pension income take you into a higher
tax band?

atush

W/o knowing the details (and feel free to get them and bring them back here) I would say, if you are working then you don't need it so don't take it.

If you have to take it (ie it will not grow etc which is unlikely) you can invest the extra income into a pension now (either up your work pension or open a new one) and the 25% TFLS can be put into S&S isas.

Most pensions I know of, that Allow you take at age 55, are actually reduced by doing so. So find out the details of your scheme esp re normal retirement age, and actuarial reduction to take at age 55.

jem16

atush wrote: »

Most pensions I know of, that Allow you take at age 55, are actually reduced by doing so. So find out the details of your scheme esp re normal retirement age, and actuarial reduction to take at age 55.

Only if it's a defined benefit scheme. It might not be.

atush

Even those that aren't FS would reduce the LS (as it would be larger if the normal RA was 60) or the annuity available if you went that route over DD.

Polly_Esther

atush wrote: »

even those that aren't fs would reduce the ls (as it would be larger if the normal ra was 60) or the annuity available if you went that route over dd.

fs?
Ls?
Ra?
Dd?
atush?

kidmugsy

Ls? LUMP SUM
Ra? RETIREMENT AGE
Dd? DRAWDOWN
atush? GESUNDHEIT

wp12345

Due work uncertainty and general 'fed up with the 9 -5 routine' I am thinking of retiring next year at age 55 and taking the 3% per year hit on my FS salary which would pay out 100% at 61. That would give me a pension of abt £28 k p.a index linked. No mortgage and no significant debts to worry about.

I need to check my spend to make sure i wont be left short on the enjoyment front so wondering if anyone has a spreadsheet or a link to a decent spreadsheets that I could use to check my lifetime budget etc ?

kidmugsy

wp12345 wrote: »

I am thinking of retiring next year at age 55 and taking the 3% per year hit on my FS salary

1) 3% p.a. is pretty generous - no wonder you're tempted.
2) Do you get a lump sum too? You might value some cash to help bridge the gap until your State Pension.

jamesd

Ggrocery, we need to know more about the nature of the pension to say what is best. It's quite likely to be a final salary type and taking those earlier than needed usually results in lower payouts.

But if this is the normal retirement age there may be no reduction at all, in which case you'd want to check if there is any increase from waiting and take it if there is no increase.

wp12345, do you have a mortgage with overpayments that you could withdraw to fund the early retirement? Losing 3% for each early year is going to be way more expensive than paying mortgage interest. Any other financial resources available that could help to bridge the gap between retiring early and the time the full pension income would be available? Even if there's nothing, a 0% for purchases credit card or two could buy you a year's delay if you use it for most of your spending.