Taking a DB Pension Early

Thrugelmir

saver861 wrote: »

It usually takes in the region of 15 to 20 years before reaching the 'loss' crossover, by which time you are well established in retirement and with a state pension etc.

So, unless there are specific tax reasons for not taking it, taking it early is often a good option.

If you live to be a 100 then you might think .... darn it.

Don't underestimate the impact of inflation on your retirement income over 20, 30 years.

saver861

Thrugelmir wrote: »

Don't underestimate the impact of inflation on your retirement income over 20, 30 years.

True. The pension will rise with CPI so it will still be relative.

amandajc

Thanks all for your thoughts, suggestions and information.

I think I'll plan to take the reduced pension at 60 and start putting as much as possible into my AVCs in order to bump up the lump sum.

Just one last question - the AVCs don't get reduced if taken early do they? I can't find anything about this on the LGPS 2014 site but it wouldn't seem to make a lot of sense if they did since they are bought outside the pension itself. They are subject to the same rules about when they can be taken though.

jem16

amandajc wrote: »

Just one last question - the AVCs don't get reduced if taken early do they? I can't find anything about this on the LGPS 2014 site but it wouldn't seem to make a lot of sense if they did since they are bought outside the pension itself. They are subject to the same rules about when they can be taken though.

No they don't get reduced

OldBeanz

Remember your AVC's are only tax efficient on your income i.e. Unlike a PP if your contibutions take you out of tax then there is no tax benefit. So my wife who earns just over £12k will only contribute £1.5k to her AVC and the rest to a PP.

amandajc

Thanks OldBeanz but I'm not quite sure what you mean.

I currently have my AVC paid/deducted from my salary before tax is assessed (at least I think that is what is happening :-)). I will be able to use all of them to boost my tax free lump sum (a perk of the pre-2014 LGPS, there are some upper limits on this but they don't apply to me.)

I earn about £26,000 and intend to pay in about £550 per month so won't be moving out of tax. Ah.. I think I see what you mean now. If I did pay in enough to take me below the PA then I wouldn't be getting any further tax advantage. Is that right?

saver861

amandajc wrote: »

Thanks OldBeanz but I'm not quite sure what you mean.

I currently have my AVC paid/deducted from my salary before tax is assessed (at least I think that is what is happening :-)).
I will be able to use all of them to boost my tax free lump sum

Your AVC's will be tax free. So for every £100 you put in, the actual cost to you is £80. Since the changes to the pension to take away the compulsory lump sum, many people are using the AVC's as a means to build up a lump sum.

Some points:
You need to be aware of the pots these AVC funds are held. They will be linked to the stock market and will fluctuate. When I got whiff of the possibility of early retirement I put all my AVC's into a low risk deposit account two years before my retirement date. This meant if there was a stock market crash it would not affect my AVC's. Potentially I lost a little by not being in the market for those two years, but a crash could have wiped out half my AVC fund.

Also, remember there are limits to what you can take in cash. There is an overall limit for which there is a formula. If you exceed certain limits then you may not be able to access all your AVC as lump sum and that amount may be transferred to your pension.

amandajc

Thanks saver861. My scheme uses Standard Life to provide the AVCs so the choice of fund is dependant on what they offer. At the moment I have about 2/3 in an Ex-UK managed equity fund and the rest in a Corporate Bond fund. Going forward I was thinking of using the BlackRock Aquila 50:50 Equity fund but, as you say, this may be way too volatile for my timescales. It's time to think carefully about where to put my money because I don't have any control over when the AVCs are cashed in, so I couldn't just hang on if markets are in in a bad way at the time.

(btw I'm way below the upper limits but thanks for pointing that out :-))

saver861

amandajc wrote: »

Thanks saver861. My scheme uses Standard Life to provide the AVCs so the choice of fund is dependant on what they offer.

Yes, but they will have all levels of risk options open to you.

amandajc wrote: »

It's time to think carefully about where to put my money because I don't have any control over when the AVCs are cashed in, so I couldn't just hang on if markets are in in a bad way at the time.

Well in one sense, you say you will leave the pension until you are 60 which is four years away. That does give time for a crash to recover. On the other hand, if you were playing with the idea of going when your husband does, or, better still if redundancy came along, then your AVC's might a big determining factor.

Nobody knows with the market, but put yourself and your current circumstances back to 2007. Anybody intending going in 2008 or were offered redundancy would have had a severe AVC hit to deal with.

amandajc

Yes, maybe I should choose the SL Deposit and Treasury fund - the lowest volatility fund on offer - for most of my money. Thanks.