Early pension

jamesd

As jem16 wrote, forget cash ISA. It'll lose you too much money compared to where it is now.

But, do you have any medical conditions that greatly reduce your life expectancy? Diabetes, heart disease, heavy smoking, anything else that could greatly shorten your life? This sort of situation is where it might be better to take the money early just so you get benefit from it, even though it'll be a worse idea for those with normal life expectancy.

Nearly_fifty_five

No health issues James .don't think I can take my defined pension but I don't want to as I pay into that and so does my company kidmugsy .. Just thought isas were a good idea because everyone keeps raving about them. My plan was to put the superannuation pension into cash isa till I retire then when I retired I would have the £738 yearly pension plus take £738 out my isa monthly so ineffect it would be like double plus I would have my defined pension . I meant to say that I'm still working with this company

jamesd

ISAs are good when used for the right things. Here's a broad summary, not a complete list:

Cash ISA: Short term savings, emergency fund, money that will be needed within five years, cash part of longer term investments, a costly but better than nothing alternative to investing for those with extremely low risk tolerance.

Stocks and Shares ISA: For those who have the risk tolerance to use pension or other investing, for money that will not be needed within five years initially. A complement to pension use for some aspects of retirement income planning, particularly for those retiring well before state pension age. Pay in with taxed income, no tax on the way out, so possible protection against future income tax rises. No CGT and no needs to keep buy and sell records.

Pension: Provides more taxable and generally after tax income for the same amount of money invested in the same way and if income is taken in the same way as a S&S ISA. Tax relief on the way in, taxed as income on the way out, except personal allowance and tax free lump sum reduce the withdrawing tax effect. No CGT and no needs to keep buy and sell records.

In your case the money will provide you with a guaranteed and higher income if you just leave it where it is and there's no significant chance of a cash ISA beating the gain you can make from leaving it where it is, so it'd just make you worse off long term to take some out and put it into a cash ISA. But a look at the shorter term might be interesting, so I'll consider that in a second reply.

jamesd

A summary of your situation first. Age 55 in June 2014. Defined benefit superannuation pension accumulated over six years has normal retirement age of 65. Currently with the same firm in a defined contribution pension. £2,000 mortgage remaining and no other debt. Interested in increasing short term income for new car and holidays.

Defined contribution pensions can be taken from age 55. A 25% tax free lump sum can be taken and an income can be taken from the rest in a variety of ways, usually income drawdown is best at younger ages like 55 but annuity purchase is another option. Or the money can be left invested until later.

You wrote that you don't want to take the money from the defined contribution because you want to continue paying into it. But it's often possible to do both. You can't be both paying in and taking out of exactly the same defined contribution pot but it is possible to transfer all or some of what you have already accumulated to another one and take income from that while continuing to add to the one at work. Not all schemes will allow this.

Another catch is, I'm not sure you can afford to take the money out. I don't know your total likely income in retirement but from the numbers so far it doesn't seem as though it'll be high. So I'm worried that taking money now will hurt you more later than it helps you now.

Perhaps you could say more about your various expected income sources in retirement so we can get a better idea of whether it looks sensible or like something we should tell you is possible but a bad idea?