Checking my pension decision before I do it!

gamston

hi
just taking early retirment myself
i work for railway we get a lump sum coversion of 12-1 (last few years its changed to 16-1)
i'm taking a bigger pension small lump sum as as it only takes 12 years and the bigger pension overtakes the lump sum (roughly)
with your figures it would take 25 years or more for the bigger pension to overtakethe lump sum
if i were in your shoes i would take the lump sum option and use the lump sum to make up your pension to the £24k
yes you are eating away the lump sum,but what is the lump sum for, if not to use

tell_it_how_it_is

I agree with the lump sum is to use sentiments.

To me, looking at the simpler aspect of your conundrum, in a simple way, it could create a little bit of 'flexibility' on top of the fixed amount: I.e. you could say loosely define £500pm, £6000pa, which would give you 20+ years, but with the ability to overspend and underspend as and when necessary.

gamston

as tell_it_how_it_is, said use it as top up
remember its tax free so £6000 per year is worth nearly £7000 a year

fairleads

Life is finite and in almost every case that i've seen here on MSE forums, if it were my decision (based upon several years of retirement) I'd take the biggest lump sum possible. Put another way, to me its life style rather than commutation rates that is the deciding factor

kidmugsy

In your shoes, OP, I think I'd begin by getting an official estimate of my State Pension and the date it would begin. Then I'd ask whether I thought I could live comfortably on that, plus the £19,264 p.a. with all its subsequent rises. If so I'd be tempted to take the lump sum of £128,428 and use some of that capital plus the earnings of the capital to bridge the gap until the start of the state pension.

This logic would apply whether you took your pension early to protect your savings, or took it at NRD and then replenished your savings. I suppose that if your savings are being withdrawn from irreplaceable tax shelters - e.g. ISAs and ILSCs - it might be tempting to preserve those shelters by taking the pension early.

As for getting a regular income from your capital without fuss, consider this scheme at Personal Assets Trust.
http://www.patplc.co.uk/secure/documents/plans/2013%20Key%20Features.pdf

Observe: "The Cash Income Option allows investors to
receive a quarterly cash income from the sale of shares held by them within the Option. The minimum quarterly withdrawal is £500 and there is no maximum." So this plan combines a payout of dividends and capital realisation at a rate chosen by you, with no effort.

scottishgraeme

Excel wrote: »

Hi there, I’m about to make quite an important financial decision but before I do so, I’d really appreciate some independent feedback on what I’m planning to do.

I’m 57 years old with a deferred occupational pension that will pay me £29,500 p.a. at my NRD which is 31/12/2015 (age 59 years and 10 months).

I’m self employed and work has almost dried up completely overthe past 2 – 3 years so I’ve been living off my savings rather than take an early pension as I want to achieve the maximum annual income when I retire. However I’m now starting to think it would be better to take early retirement.

I’ve just got a quote for retiring at age 58 (10 months away). This was for £24,802 p.a.with no lump sum or £19,264 p.a. with a lump sum of £128,428. I’ve decided to go with the option of retiring at 58 instead of 60 without the lump sum and here is my logic:

1. My aim is to achieve the highest possible monthly income. I also want a stable monthly income rather than have to worry about investments and fluctuating interest rates in my retirement.

2. Unless I tied the £128k into long term investments I would be hard pushed to make up the shortfall of £5,500 p.a. with savings interest.

3. It’s too late to buy an annuity as I’ll need an income from it straight away and in any case the rates are unattractive at the moment.

4. I’m single with no children so I don’t need toworry about having a lump sum to leave in my will.

5. If I retire 2 years early I will be able to hold on to my savings rather than deplete them completely by age 60.

6. Once in payment, 97% of my pension will increase by 5% per annum so on that basis I have calculated that my annual income will increase to £27,345 by age 60. That’s around £2,000 p.a. less than I wouldhave received had I hung on to age 60 but I’m happy with that.

7. Between ages 58 and 60 I will have received roughly £50k in early pension payments so I’m better off for the first 25 years.

I did speak to a financial adviser a couple of years ago and when I suggested that I might retire without taking the tax free sum I thought he was going to have a heart attack! He made me feel that it was a very bad decision yet my personal circumstances tell me it’s right for me.

I’m not asking anyone here to give me financial advice but just to open my eyes to additional options (if indeed there are any) that I might be unaware of and that I can investigate myself. For example, I hear that most people do take their tax free lump sum but how do they earn sufficient income from it to make it worthwhile?

Also do my pension projections in points 6 and 7 look about right to you?

I know that you can get better annuity terms by pleading shorter life expectancy. Does this work with occupational pensions too? I’ve been a (Type 1) diabetic for 40 years and I also have high blood pressure. Would that have any effect on the sums offered by my ex employers? I think perhaps not but it’s worth asking.

How soon before your required early retirement date do you put in your application? I was thinking of formally requesting 6 months before, i.e. say early September 2013 for a retirement date end of February 2014.

To those of you have bothered to read this far – thanks, and to those of you who reply with answers – many thanks!!

Hi Understand where you are coming from I own a financial adviser firm and we specifically deal with the railway industry our new website has over 4000 hits per day unfortunately due to the nature of this forum I cant tell you what it is as i would be banned for advertising. You are in the position where you "need" advice, the RPS is an excellent scheme so its only with cation and with your state of health i would recommend that you shop around. One thing you should look into is a potential drawdown this would give you flexibility as well as the possibility of purchasing a life impaired annuity which may provide higher income for you but it is complex so find a good IFA who can explain and recommend the correct course for you. Its better to have all the options in front of you before you make a decision, as your decision is likely to be irreversible but best wishes on your retirement whenever you decide to take it

jamesd

It was someone other than the person you quoted who has the railway pension. This one has a generous one from a financial services firm. This doesn't invalidate your key points, though: only the individual circumstances here make it sensible to consider switching and those are so potentially beneficial that they do need to be evaluated.

FatherAbraham

fairleads wrote: »

Life is finite and in almost every case that i've seen here on MSE forums, if it were my decision (based upon several years of retirement) I'd take the biggest lump sum possible. Put another way, to me its life style rather than commutation rates that is the deciding factor

If your discounting function for future cash flows were as extreme as you claim, then you'd be unlikely to've saved any money for retirment in the first place ;-)

Warmest regards,
FA

fairleads

FatherAbraham wrote: »

If your discounting function for future cash flows were as extreme as you claim, then you'd be unlikely to've saved any money for retirment in the first place ;-)

Warmest regards,
FA

You've lost me with this statement

Excel_2

Thanks to everyone here and your suggestions. I have spent a lot of time over the past couple of days reading about and researching your ideas and also getting annuity quotes.

I've decided to "invest" the tax free lump sum in my occupational pension (in other words I won't take it) because nothing else can match the guaranteed 5% increase each year for the rest of my life. (It definitely is 5% as I have it in my deferment statement. I left the company before they started reining in the pension benefits).

Even the best impaired life annuity quote was for £4,200 (RPI increase) which isn't enough to cover the income shortfall of £5,500 if I chose to take the tax free lump sum.

The option of income drawdown (and depletion of the capital)will mean gambling on when I die. If I'm "unfortunate" enough to live as long as my mother (currently 86, mobile, active) then the capital will be long gone.

I'm not a risk taker so stocks and shares ISA's don't appeal to me. Also the net yields quoted couldn't match my target of 5%.

I feel more confident now that I'm making the right decision so thanks again for your replies.