When is it worth taking DB early - Actuarial Reduction)

PenActuary

I assume the 25% is applied to the pension at the early retirement date and an additional 5 years of revaluation is not added back in.

Anyway 25% is justifiable easily , but 20% I'd say is probably a bit more reasonable based on current market conditions.

As I say these factors usually change very infrequently.

Dunnit

Teaandscones wrote: »

What would be a fair actuarial reduction for someone who takes a pension at 60
compared with a NRA of 65? The LGPS has 25% which seems penal to me particularly as my mother's side of the family tend to go on and on and on.

Given that many government employees are averaging 0% pay rises and inflation must have averaged about 3.5% over the past 5 years it is not as bad as it looks.

grey_gym_sock

if DB + state pension might take you into higher rate, then you could try to completely empty your DC pot before that happens, providing you can do so without paying more than 20% of any of the DC (or, if DC pot is too big for this, just draw the maximum each year to not quite reach higher rate tax). this is where osborne's lifting of all restrictions on drawing from DC pensions can help you (assuming it actually happens).

of course, this does not mean spending it all! you can invest what you don't spend in S&S ISAs, or unwrapped if it won't fit (though you will now have £30k ISA space per year between 2 of you, so presumably it will fit).

i think this is a better place to start than drawing DB early. though the latter might be worth considering if you can clear out the DC pot completely, with some 20% band to spare, before you're 65, and look like having HRT issues from DB + state pension.

however, this will become clearer nearer the time. right now, who knows how long this fiscal drag for the higher rate threshold will continue?

mark55man

thank you ggs (if I may be familiar)

I haven't modelled any increase in tax bands as that way would be more conservative (ie I would benefit if they increased) - however it is equally clear that taking the DB early provides less value than taking it at its due date so I shouldn't do that unnecessarily

I think if I start taking the DC early I wouldn't have enough to put any away into savings (without incurring HR charges which kind of but not totally defeats the point). I should probably add that I am not mortgage free, have 4 kids one of whom needs sufficient attention that my OH needs to support him from home, so my budget for next 10 years will spend the entire 20% band and then some

I may need to do a bit more thinking on this one - but luckily I have some if not plenty of time

kidmugsy

mark88man wrote: »

thank you ggs (if I may be familiar)

I think of him as J. Grimsock.

kidmugsy

mark88man wrote: »

4 kids one of whom needs sufficient attention that my OH needs to support him from home

Does this mean that you might like to consider buying more years of NIC contributions for your OH in due course?

grey_gym_sock

well, if your DC pot is big enough that you can both

a) draw enough from it to use your whole 20% band each year

and

b) draw enough from it to live off the net income (so you'd only draw income going into 40% tax if you're going to spend it)

and if both a) and b) remain true until age 65, without completely emptying the DC pot, ... then i don't see much point in taking the DB early.

mark55man

kidmugsy wrote: »

Does this mean that you might like to consider buying more years of NIC contributions for your OH in due course?

I will check, but by my understanding you get NI credit if on child benefit until 15 which will give OH 30 years so far.


We expect her to work (not necessarily at her old job, and possibly self employed) for at least 5 of the next 10 years so I think we shouldn't have a problem with NI contributions


If that plan changes (ie no work and more care) then I will need to look into it

mark55man

grey_gym_sock wrote: »

well, if your DC pot is big enough that you can both

a) draw enough from it to use your whole 20% band each year

and

b) draw enough from it to live off the net income (so you'd only draw income going into 40% tax if you're going to spend it)

and if both a) and b) remain true until age 65, without completely emptying the DC pot, ... then i don't see much point in taking the DB early.

So the conclusion I draw from this is that I need to work out an amount in the DC pot that I would want to keep uncrystallised to help top up OH income if I pop my clogs before her, but making sure I don't tap into DB until that DC figure is reached.

OK that's interesting