Take pension early and carry on working

patanne

I'm trying really hard to think of a reason why what you want to do would be a good idea. Do you need it to pay off an interest only mortgage or debts which are spiraling because of charges? I can only assume that you are on a much reduced salary at present and that your pension would be more than you are currently earning. Otherwise why not just save from your current income to get the lump sum? If you can't then what will you live on when you retire completely?

xylophone

If you can't then what will you live on when you retire completely?

His index linked DB pension and state pension?

He'd get tax relief on the SIPP while he's contributing and be able to take 25% tax free - he'd be able to take the balance taxed as income as and when he wishes.

Presumably he expects to be a 20% tax payer in retirement.

Daniel54

malcolmfowler wrote: »

I am 57 in April 2015 and have a final salary pension which would pay £27k from my birthday or £31k if I wait until I'm 60.

]Does anyone have any comment of the pro's / cons of such a plan? Has anyone done this?

I'm wondering about these figures

Assuming you're still an active member of the DB scheme,then you would be foregoing 3 years of additional accrual - which on a typical 60ths scheme would be equivalent to 5% of your final salary.

So a reduction of just over 10% for giving up 3 years of additional accrual and with 3 years actuarial reduction ( typically 5% per annum) on the face of it doesn't add up.

If those really are the figures,then your plan has some merit,but are they really correct ?

patanne

Sorry but if he is living up to his means so much now that he can't save anything, how on earth is he going to manage when he actually retires. I know there are the normal reductions - no transport to work, wearing special clothes (we do still have to dress from time to time), parking charges etc etc, but they don't really add up to enough.

If you want to retire with a full life it can actually be MORE expensive than working as you have more free time to fill. Which is why I tried to get my retirement to be more than when I was working (mortgage paid off no debts etc). Cars still break down when you retire (I do much more mileage too), roofs still need replacing etc etc.

What is your nett income now?

patanne

Does anyone think that this is a good idea??????????????? I've made it obvious I don't but I guess I'm not persuasive enough. Someone please jump in here & stop him from making a big mistake!

redux

OK, naive question time.

I see the people comparing the £81k drawn out in 3 years with £4k per year less for say 20 years, but surely that decrease of income can be mitigated by re-investing the money that's come out?

patanne

And naive answer in response is are you 100% certain that you will only live for 20 years. So you reckon you can get 5% return on your investments - guaranteed!! Please let us know -

PeacefulWaters

Let's assume the OP is 37 years into a final salary pension scheme based on 60ths. OP, it would be nice to know the actual numbers here.

37/60 minus 15% is £27k.

This implies retiring at 60 would generate a c£34k pension, because an additional three years of scheme membership would have been achieved.

The trade off, therefore, is gain £81k over the next three years but lose £7k of indexed income and spousal benefits from age 60 until death.

On that basis, unless life expectancy is severely inhibited by known conditions, it's a terrible idea!

malcolmfowler

Thanks all, really interesting debate. I should have provided a few more factors. I can now afford to retire on the reduced pension. The pension is deferred as I was TUPED into a new company and had my pension changed from a final salary to a 15% company contribution into money purchase scheme. My current salary is twice my defferred pension.

So my plan was to live off the pension and save all my salary. I.e. work for another year even though I don't have to and save everything tax free. For the sole purpose of creating a lump sum.

Should I get an IFA to help me?

saver861

At first my reading of this was that you were retiring from your existing job and taking the pension whilst, taking up a new (different) job. Having re-read it, it seems you are staying in the job and just taking the pension.

Without considering the detail, first impressions are that this is not a good deal. After taking early retirement myself, I have taken one pension early with a reduction rather than deferring it - on the basis it will take about 18 years before the lines on the graph cross into negative. By then I will be well into old age if I'm still around but the consensus on the board seems to be that you should defer in this situation , I'm not sure why.

I'm guessing if you go into the figures on this more deeply you will find your answers. I suspect you will find a number of reasons why this is not a runner, tax benefits, costs, etc. Definitely you need someone with sufficient experience to outline 'all' the pro's and cons. If you want a bigger lump sum, you need to explore the various options of working towards one, from putting it under the mattress to investing etc. When you compare 'all' options the answer will be plain to see.