reaching 55

Graham001

Hi sorry if this post is in the wrong place, and this is probably a derr question, but could anyone answer this please. I have a deferred pension, and on the last annual statement it states the size of my fund. Now I was hoping that when/if i reach 55 as i understand it i can withdraw up to 25% of this ammount, and have a reduced pension (the normal age i would have to retire is 65 in this scheme). is this correct, or would i be penalised for taking it out early. I would appreciate your comments:)

xylophone

Would the scheme allow you to take early retirement?

The pension would be actuarially reduced. Here is an example from LGPS http://lgps2014.org/content/actuarial-reduction

Graham001

I have written to ask, but am awaiting a reply. Are you saying that the size of the fund that they give is not the ammount I can withdraw from, and it would be reduced if i were to take it out at an earlier date?

ermine

Graham001 wrote: »

and on the last annual statement it states the size of my fund. Now I was hoping that when/if i reach 55 as i understand it i can withdraw up to 25% of this ammount, and have a reduced pension (the normal age i would have to retire is 65 in this scheme).

Provided you are talking about a defined contribution pension, then yes, in principle. It is HMRC that don't let you draw any earlier that 55. Once you have reached that age, you can draw 25% of your pension as a tax-free lump sum and do something else with the rest of it to give you a steady income.

Your statement that it shows you 'the size of your fund' indicates it's a defined contribution scheme. It instead it is a defined benefit scheme then you have to ask the pension trustees what your options are because those depend on the scheme rules.

Before you actually go woohoo, 25% pension commencement lump sum, make my day, you want to bear in mind crystallising pension benefits is a one-time only choice, the financial benefits depend on your tax status, your income from working and all sorts of other things. Your pension pot needs to be roughly 20 times your desired income, probably more for an early retiree who hasn't taken any of the other steps to bulk up their retirement income. There's a strong case to consider taking independent financial advice if your pension pot is > 50k. If it's less it isn't going to be enough to do you much good if it's your only retirement savings...

For a DC pension the retirement age of 65 is only shown as a guideline, you can retire any time you want. They choose 65 because most people don't like the sound of how little they will get if they retire at 55/how much they have to save up to get the income they feel necessary. A typical assumption seems tt be the pension is in payment for 20 years, so if you retire 10 years before then you'll find your retirement income much lower. But it'll be paid out for longer.

CLAPTON

what sort of pension is it

a 'final salary type or a pension pot?

jamesd

Please say a bit more about what you mean by "deferred pension". In the pension world the word "deferred" automatically means a final salary or other defined benefit pension but those not familiar with pension terminology usually don't know that.

Is this that sort of defined benefit pension or is it instead some defined contribution or personal pension with a pot of investments that you can control?

It it is DC or personal pension, how close are you to having pension pots that will eventually, with more years of growth, reach or exceed £1.25 million in value? For DB types, use the income multiplied by 20 to work out their value for this purpose.

If it is DC you can take lump sums from age 55. Can take up to 25% tax free lump sum from each part of the pension that you crystalise/take benefits from. The rest can be used for income drawdown or to buy an annuity. At 55 an annuity is almost always very bad value. Income drawdown just means taking your income from investments that you keep within the pension. You don't need to take income if you don't need it. Bad reasons for taking a pension lump sum tend to be things like paying off a mortgage early when the mortgage wasn't originally a pension mortgage.

atush

If it is a money purchase/DC scheme, and you need/want the LS but are still working- consider not buying an annuity but instead leave it in drawdown and just don't draw any income. That way the 75% left will continue to grow until you need the income.

xylophone

Please say a bit more about what you mean by "deferred pension"

Jamesd is quite right.

Yes, I should have asked this - I saw 'deferred" and "scheme" and thought immediately of Final Salary.

I have noticed in the past that even when people are Deferred FS pensioners they sometimes speak of the projected retirement benefits as their "pot".

I should have checked with you!

Graham001

Thanks for your assistance everyone. It seems that the pension world is very complex, and the rudimentary mistake to most "laymen" (incluing myself) is that they have little idea as to what they are signing up to, and it isnt until it gets nearer the time that they need a degree to understand what it all means. But I now realise that i have to request more information from my fund. I would be grateful for the prudent questions i should ask.

zagfles

xylophone wrote: »

Would the scheme allow you to take early retirement?

The pension would be actuarially reduced. Here is an example from LGPS http://lgps2014.org/content/actuarial-reduction

Surely those different male/female reduction rates are now illegal?

The basis of these in the LGPS was always really dubious anyway - men and women accrued the same pension to NPD despite the life expectancy difference, but men got a bigger reduction for taking the pension early because, as they have lower life expectancy and so a lower actual cost, each year's extra pension is worth a higher proportion of that lower cost!! It was unbelivable hyprocrisy, wonder why the unions never made a fuss about it??

atush

Say who you worked for, and what the pension statement says.

If it is a Final Salary scheme, it will be a factor of the years you worked times your final salary.

If it is a money purchase scheme, there will be a pot size, and a list of where it is invested (ie the funds chosen).