should i cash in my final salary pension ?....?

Sony_smartphone

Hi guys,, I, m just new to this forum so a bit unsure,, my dilemma is should I cash in my final salary pension,, I requested a quotation from my pension provider, the transfer value of the pot is worth £174000,,I've just turned 55 ,, my quotation for early retirement at 55 says my pension would be £6188 per year with no lump sum or £3900 per year with a lump sum of £26500,,with these new pension rules coming in I,m wondering would it be better for me to take 25% of my pot tax free and maybe do "draw down" on the balance, , our kids have all grown up and are doing ok, we, re mortgage free,,we have savings of around £100000,,,, any help or opinions would be very much appreciate, ,, sorry I forgot to say I dont work anymore,,

PeacefulWaters

Almost certainly not. In a perfect world you would delay taking it for a few more years.

Do you have a spouse?

What happens to your pension when you die?

Does the scheme guarantee inflation linked increases each year?

Xbigman

Are those figures right?



Darren

OldBeanz

You have done well and accumulated £100k outside your pension which is yours to do with as you will. Your attitude to risk with your pension would be completely different. Do you really want to be managing money to ensure you have a steady inflation proofed income? Leave the DB pension alone safe in the knowledge that someone else has taken that responsibility from you.

dunstonh

my dilemma is should I cash in my final salary pension,

9 times out of 10, that would be a bad thing to do.

my quotation for early retirement at 55 says my pension would be £6188 per year with no lump sum or £3900 per year with a lump sum of £26500,

What about at the normal scheme age?
It may be more cost effective to use your £100k to fund the gap and take the occupational scheme later.

Lots more info needs to be known here.

Sony_smartphone

Hi guys and thanks for the feedback,,, in answer to "peaceful waters",,
I do have a spouse, she is 55 also, she works part time,, she has an old pension,, this pension pot is worth about £13000, we, ll definitely cash this one in,, also my pension pays my wife 50% in the event of my death and lastly my pension will increase yearly inline with inflation,

In answer to xbig man,,, the figures are 100%,,

jamesd

Sony_smartphone wrote: »

the transfer value of the pot is worth £174000

A common guideline is that you can take around 4% of a pension pot value, increasing with inflation, for lifetime income without an excessive chance of having to reduce income late in life. So a pot size could produce an income of £6,960 a year using that guideline.

Sony_smartphone wrote: »

I've just turned 55 ,, my quotation for early retirement at 55 says my pension would be £6188 per year with no lump sum or £3900 per year with a lump sum of £26500

The drawdown alternative involves taking investment risk so given that there is not a huge difference between the income levels I suggest that you continue to leave the defined benefit pension where it is until its normal retirement age. Probably 60?

The lump sum option gives you just £11.58 of lump sum for every Pound of income given up. since a person aged 55 today is likely to live for at least 30 more years that is a very poor deal and it's better to have the higher income.

Sony_smartphone wrote: »

with these new pension rules coming in I,m wondering would it be better for me to take 25% of my pot tax free and maybe do "draw down" on the balance

No, doesn't look like it. Even with the penalties for taking the pension earlier than usual (I assume it's early) the defined benefit pension looks like a better deal left where it is.

Sony_smartphone wrote: »

we, re mortgage free,,we have savings of around £100000,,,, any help or opinions would be very much appreciate, ,, sorry I forgot to say I dont work anymore,,

You should be fairly OK because from age 55 until an assumed state pension age of around 65 you could expect to take at least £10,000 a year from the savings to top up your income level. But to do a proper job of working out what options look best we need to know more about your full situation:

1. What will the state pensions be for each of you, what are your ages now and what is state pension age for each of you?
2. What income level do you need as a minimum long term once the state pensions have both started? What would be nice to have above that but not extravagant? How about to match the standard you've been used to while working?
3. What pensions will each of you get and at what ages? For example, the defined benefit one you mentioned, what is the normal retirement age and what income does it say you could have then without taking a lump sum?
4. What is her income and for how many more years does she expect ro want to continue with this?
5. What are your main money worries at the moment, if any?
6. Any debt issues?

Once we know your income needs and potential future income streams it'll be possible to come up with a decent plan to meet those needs.

One option that people often don't consider is short term use of an equity release mortgage that allows gradual drawing of money,. You can do things like drawing £5,000 a year then repaying it over say twenty years once all of the work and state pension money is coming in. It can be a really useful boost to income until that extra money is available.

Linton

I agree that the figures look wrong. The full pension of £6188 is worth £174K. Losing £2288/year, over 1/3rd of the pension, only gains you £26500, less than 1/7th of the pot. If the figures are right going for the lump sum seems a seriously bad idea.

If you are choosing between cashing in now and taking the pension now, the choice in pure financial terms seems pretty marginal to me - £174K could reasonably get you an average £6188 from drawdown roughly inflation matching but of course without any guarantees and with some effort on your part in putting together and managing a sensible portfolio of investments. However I suspect that the figures could look rather different if you took the pension at 60 or 65.

sandsy

That CETV doesn't look very generous at all. On the open market, it would cost closer to £250k to purchase that inflation linked income, with spouse's benefits at your age.


Whilst I realise that's not what you want to do, you need to weigh up having that £6188 increasing with inflation each year guaranteed for life OR using drawdown and the risks of the drawdown income not being guaranteed/running out of money if you or your wife have good long lives.


But dunstonh's idea of using your existing savings until normal retirement age seems sound (as usual) as presumably there's been an actuarial reduction applied to the income quoted at age 55.

232607

At the risk of getting “shot down” in flames, I’m going to offer the opinion that the transfer should be investigated in more detail.
Generic advice of it being a bad decision in 9 out of 10 cases was probably true in the past but we’re now seeing very high CETV’s as a result of low gilt yields. In my opinion, this is a “game changer” from the general generic advice.
I’ve just transferred a DB that had a current value of £10,998 PA to a pot of £283.4K, giving a ratio of 25.8 to 1. At that ratio I was happy to forgive the safety of the DB, IE I considered there to be more potential to the upside in an investment environment that there was to the downside & I was prepared to take the risk.
A quick peek at the OP’s figures gives £6188 transferred to £174K, giving a ratio of 28.1 to 1. I’d say that certainly looks to be in the range of being fair albeit many other factors need to be considered, hence my thought that it should be investigated in more detail.
As a little aside….Standard Life (SL) up until the 6th of this month have been accepting DB transfers without IFA sign off. Approximately 12 other colleagues have transferred the DB to SL, some with an IFA, some without. No IFA has refused to do a transfer.
Are we really saying that SL & IFA’s are willing to conduct transfers with the likelihood that they will be sued in the future in 9 out of 10 cases?
As I say…Just my opinion!!!

atush

First of all, are you still working? Earning an income? If you are, i'd use some of that cash hoard and put it in a DC pension, getting the boost of TR.

Then Draw it 25% tax free and the rest using your PA. While NOT taking your DB pension early/reduced. I'd leave that til scheme age if you can, and I'd take the full pension w/o lump sum to maximise your indexed pension for life. Bump up your OH's pension too.

This approach should give you a higher income, and you will pay less tax.

Should decide not too, i'd be putting some of that 100K into S&S isas for both of you.