Taking 25% from my pension pot

irri_tant

I turn 55 this year in October. Can I take 25% out then?

I know it drops the pension down if I do as my offer to take VR is a reduced pension of £15,860 and lump sum of £129,500. I would expect my pension to be slightly higher due to paying in still.

I have the option the take VR but may not take it up but would look at taking 25% out this year if it's feasable for me to do so. I would stay in employment until I was 58 then retire as the company I'm working for is closing the site down.

Once the money is in a pension, it can't be withdrawn willy-nilly. It must stay there until you're at least 55. At that point, you can take 25% of it as a tax-free lump sum with the remainder to provide a taxable income for the rest of your life.
This is based on current rules, which the Government may decide to change over time.

http://www.moneysavingexpert.com/savings/discount-pensions#retire

dunstonh

I turn 55 this year in October. Can I take 25% out then?

Depends on your pension.

I know it drops the pension down if I do as my offer to take VR is a reduced pension of £15,860 and lump sum of £129,500. I would expect my pension to be slightly higher due to paying in still.

Is this an occupational pension?

Why would you want to take the pension early? Generically, it is best to leave it until you need it. Not take it early. Especially where there are penalties and even more so with occupational schemes where extra years can add tens of thousands of pounds potentially or extra employer contributions boost the fund value (again depends on type of pension).

atush

I believe you have a defined benefit pension?

Which means you'd have to take the whole pension incl income early of you got yoru LS early? Plus, you might want to take less LS if you can have a higher pension for life.


I would probably avoid doing this, even if you are allowed.

irri_tant

dunstonh wrote: »

Why would you want to take the pension early?

Because it's the package to take VR from work. I would no longer be paying into it.

atush

You have another thread going as well.

We have come to stalemate on both, as you Do Not say if it is a FS/DB pension or a money purchase one.

You also don't say how much LS you need, and what for.

We can't really help w/o at least knowing exactly what type of pension you have, as to take some early can be devastating in terms of reduction of income.

But if you have a defined benefit/FS pension, and they are letting you take it early w/o a reduction, this would be another matter. So please give us the info we need to help you.

irri_tant

atush wrote: »

But if you have a defined benefit/FS pension, and they are letting you take it early w/o a reduction, this would be another matter. So please give us the info we need to help you.

It's 'Defined Pension' without reduction for going early I learned today

atush

Ok, that is good. But you will have to take the whole pension including income.

2 things, if you will be working you could put your pension income into another pension, or live on your pension and put 100% of your new income into your new work pension. This will give you further funds later for both a 25% TFLS and either DD or flexible DD.

Second, do you have to take the whole 129K? Or can you take less and have a higher pension?

irri_tant

atush wrote: »

if you will be working you could put your pension income into another pension, or live on your pension and put 100% of your new income into your new work pension.

Something to think about, thank you.

atush wrote: »

do you have to take the whole 129K? Or can you take less and have a higher pension?

No & Yes

The following is from KPMG were the pension will be paid from. Just need to work out which way to go.

Also need to do a spreadsheet to see what % changes make to the pension v lump sum

You may decide that instead of taking the maximum lump sum, you wish to take £100,000 as a lump sum (i.e. approximately 77% of the maximum allowable lump sum), with the remainder as pension. In this case, your residual Scheme pension would be scaled down as follows:

£23,160 – 77% x (£23,160 - £15,860) = £17,539 pa

The temporary pension remains at £3,570 pa (payable until State Pension Age).

Please note that the above figures are approximate and for illustrative purposes only.

atush

What does that make the commutation rate? How much LS do you need (ie how much other savings and investments will you have?)

What is your temporary pension payable until SP age? Is this on top? Or within? Will it be removed-no longer paid once you reach SP age?

This is a confusing DB pension (for me anyway). I only understand the public sector ones.

jamesd

Be absolutely certain that there is no reduction for going early. If so, that is a generous offer and very well worth considering.

Check the terms. Sometimes such deals come with restrictions that say that the pension won't be paid if you work for more than a certain number of hours per week.

The income reduction is (£23,160 - £15,860) = 7,300 to get the maximum £129,500 lump sum. 129500 / 7300 is a commutation rate of 17.7:1. or put another way, giving up 5.6% plus inflation payout on the money you take as a lump sum. It isn't a good deal to take lump sum money with a commutation rate like that.

It'd be a particularly bad idea to do something silly like taking the bigger lump sum to pay off all or part of a mortgage. that would save the mortgage interest for a few years but cost you that 5.6% plus inflation growth for the whole rest of your life. A better idea if a mortgage is a concern is just to extent the mortgage term into retirement.

You have an even better option. Flexible Drawdown lets people take out 100% of a personal pension pot if they have at least £20,000 of guaranteed income for retirement in payment. And you will if you take the maximum pension income. So you can carry on working and pay that income into a personal pension, then use the personal pension money - after tax relief! - to clear the mortgage later. You can't beat getting tax relief on your mortgage capital payoff!

This pension deal is great in that it lets you get one of the best pension deals available - Flexible Dawdown. the tax relief of a pension without the restriction on how much you can take out. Great even if you don't want to use it for mortgage paying off, just to get some nice reserve pot of money to cover the unexpected. Or to temporarily take a higher income by draining a personal pension pot between stopping work and starting the state pensions.

The mortgage might not apply to you but it's one of the quite common things that people think of taking lump sums for. It's OK for defined contribution personal pensions but a bad idea for defined benefit work ones.

westy22

And you will if you take the maximum pension income. So you can carry on working and pay that income into a personal pension, then use the personal pension money - after tax relief! - to clear the mortgage later. You can't beat getting tax relief on your mortgage capital payoff!

I thought that you could not make further pension contributions if you have elected to take flexible drawdown?