transfer or take pension

3pens

I have the option of taking £50k index linked final salary pension early at 55 or taking cash alternative of £1.35m
I am retired, good health and debt free and have other investments (share portfolio, property and savings) but like the idea of having guaranteed income (sponsoring company currently in good shape )
2 other pensions will provide additional 4k pa now or 7k at 60.
Children grown up and no dependents.
Is 50k pa likely to be worth more than 1.35m , ie am I right to take pensions early?

mgdavid

are you male or female, i.e. what is your life expectancy?
say you last to 90, 35 years of 50k is 1.75 million which is a lot more than 1.35 million. But that's enormously simplistic.

Your_Hero

3pens wrote: »

I have the option of taking £50k index linked final salary pension early at 55 or taking cash alternative of £1.35m
I am retired, good health and debt free and have other investments (share portfolio, property and savings) but like the idea of having guaranteed income (sponsoring company currently in good shape )
2 other pensions will provide additional 4k pa now or 7k at 60.
Children grown up and no dependents.
Is 50k pa likely to be worth more than 1.35m , ie am I right to take pensions early?

Do you require any income now? If the sponsoring company is in good financial shape, then there is no reason to take it early and face actuarial penalties for each year. Even delaying it by 5 more years would probably give you 20-25% more....

On a separate note, did you apply for any transitional protection, such as the recent Fixed Protection 2014?

3pens

Thankyou mg and hero.
I am male. I protected at 1.5m
I note comment re benefits of taking pension later but having made assumptions that income tax rates remain similar and inflation runs at 3 % based on my loose calculations I estimate that


if I take pension at 55 by the time I reach 85 I would have received around 2.19m pension net of income tax


if I take pension at 60 by the time I reach 85 I would have netted around 2.33m


if I then factor in the money I would need to take from investments/savings if I were to wait until 60 ; say 5 yrs at 50k and deduct that from the 2.33m my conclusion is that I would need to live beyond 85 to see any real financial benefit of taking pension at 60


As such my conclusion was take the money earlier while I can get more enjoyment from it


Is my logic flawed ?

green_man

Presumably that 1.35 million would be subject to tax on 75% of it? which at 45% would eat a large portion of it.

Essingeviken

What are the provisions for your wife?

To me, it is a bit of a no brainer. You only need a period of high inflation and poor investment returns for the cash option to look really quite poor. I would go for the certainty of a good, indexed linked retirement pension.

mgdavid

Essingeviken wrote: »

What are the provisions for your wife?

To me, it is a bit of a no brainer. You only need a period of high inflation and poor investment returns for the cash option to look really quite poor. I would go for the certainty of a good, indexed linked retirement pension.

I agree; the certainty is worth having. Once the DB pension is in payment even if the worst should happen it's covered by the PPF
http://www.pensionprotectionfund.org.uk/Pages/homepage.aspx
and even with you retiring early you are guaranteed £30k p.a. and it goes up each year to NRD.
http://www.pensionprotectionfund.org.uk/Pages/Compensation.aspx

greenglide

What are the provisions for your wife?

Does "Children grown up and no dependents." not indicate that there is no partner?

atush

I am not so sure, esp as we haven't heard about provision for spouse.

Given the amount of other pension coming in (ie the 7K plus SP) and the other savings and investments that provide income now, having the 1.35M and all the freedom/income that would give you sounds pretty nice.

This is a hard one.

atush

greenglide wrote: »

Does "Children grown up and no dependents." not indicate that there is no partner?

If she works she might not be dependent?

Plus the children may be grown but they'd get more from him int he end if he took the cash instead of annuity?

kidmugsy

3pens wrote: »

I have the option of taking £50k index linked final salary pension early at 55 or taking cash alternative of £1.35m

Would they let you split it? The reason I ask is that there's a case for taking an annual pension equal to the sum covered by the PPF guarantee, and taking the rest in cash, especially if they'll let you use the cash as a transfer into a personal pension of some sort, so that you can withdraw it to make best use of the tax bands. 40% is better than 45%, and much better than 50%. (There's an election coming, you know.)