Pension at 55 or best to wait?

tdowson

A friend was self employed and is closing their business and plans to use income from various savings and investments to make end meet. They are nearly 55 and have a personal pension. Should they start drawing it, or would it be better to postpone drawing it for longer if they can make ends meet without it?

I have suggested they go to an IFA. But I would like to know if there is any general consensus on what factors would dictate the better plan of action.

jem16

tdowson wrote: »

A friend was self employed and is closing their business and plans to use income from various savings and investments to make end meet. They are nearly 55 and have a personal pension. Should they start drawing it, or would it be better to postpone drawing it for longer if they can make ends meet without it?

I have suggested they go to an IFA. But I would like to know if there is any general consensus on what factors would dictate the better plan of action.

55 is very early to start drawing a pension. If they don't need it now it would be best to wait as annuity rates will be better if you are older.

tdowson

jem16 wrote: »

55 is very early to start drawing a pension. If they don't need it now it would be best to wait as annuity rates will be better if you are older.

OK thanks. Are annuity rates fixed at a higher amount for an older person? Then I can see that is a benefit. But against this what if overall annuity rates fall over the next 10 years (as life expectancy continues to improve, plus the debt burdened economies are a long way from finding a real solution)? If it means waiting 10 years for a chance of any significant improvement in annuities, would that wait be justified?

As we cannot be certain that annuity rates will improve, is that the only reason to wait and not start drawing income straight away?

gadgetmind

Is this just to tide them over until they find another profession?

Or are they bridging the gap to state pension age, which is a big ask.

atush

Annuity rates rise with age, but you don't have to buy an annuity these days, you can use Drawdown.

12 years is a long time to go living on savings before SP kicks in? Will they work at all?

tdowson

gadgetmind wrote: »

Is this just to tide them over until they find another profession?

Or are they bridging the gap to state pension age, which is a big ask.

No they are unlikely to find employment again. But they do have some other income from rented property and savings. But can either supplement this by drawing the pension now or holding off a few years. Depends if holding off is really worth it.

tdowson

atush wrote: »

Annuity rates rise with age, but you don't have to buy an annuity these days, you can use Drawdown.

12 years is a long time to go living on savings before SP kicks in? Will they work at all?

He did say that an annuity worries him as with inflation the spending power will be worth half in 20 years what it is worth now. So maybe a drawdown is better.

No he is unlikely to work. He has a rented property and some savings. He could just about manage on these he thinks, but isn't sure if it is best to start drawing down the pension now rather than later.

Say the annuity (or drawdown) was X% better by delaying 10 years, in 10 years is the increase in X more than the total amount of pension foregone in the previous 10 years?

bigadaj

In terms of annuities there are options, if worried by inflation then they can be inflation linked though this means a big hit on the initial income.

In terms of whether delaying a pension is worthwhile then that depends on how long people live, on average delaying drawing a pension should give a larger total amount of payout, but that depends on life expectancy and individual circumstances.

tdowson

bigadaj wrote: »

In terms of annuities there are options, if worried by inflation then they can be inflation linked though this means a big hit on the initial income.

In terms of whether delaying a pension is worthwhile then that depends on how long people live, on average delaying drawing a pension should give a larger total amount of payout, but that depends on life expectancy and individual circumstances.

Is there anywhere that shows the figures to compare what yearly income would be if taken at 55 compared to what it would be if delayed until 65?

kidmugsy

The beauty of drawdown is that it can increase (per pound left in the fund) when interest rates go up. Whereas if he starts an annuity now he's locking in the current low interest rates. Unless he can expect an enhanced annuity for reasons of health it would be a rash gamble to start an annuity at 55.

kidmugsy

tdowson wrote: »

Is there anywhere that shows the figures to compare what yearly income would be if taken at 55 compared to what it would be if delayed until 65?

Such a table would be dependent on the assumption that (i) interest rates won't change over the next 10 years, (ii) that life expectancies in general won't change, and (iii) that nor would your friend's health. So basically they just assume away the three most important variables.