Taking a DB Pension Early

chiefie

amandajc wrote: »

I have been hard at work saving into a SIPP for the last year intending to grow it as much as possible, transfer in an old FSAVC and use it to fund retirement at 58 (in 2 years' time) whilst leaving my LGPS pension untouched till 65.

Recently I've started questioning this as the best policy mainly because my husband is 6 years older than me and it would be good to get the LGPS lump sum and associated AVCs sooner rather than later - as things stand he will be 71 before I would receive them. We have no debt at all and he is retiring in 3 months time having been working part-time in flexible retirement for the last 18 months. We used his lump sum to pay off the mortgage on our small rental flat, repair the roof and replace the car so all the "boring" things have been sorted. We have an emergency fund of £20,000 and S&S ISAs of around £70,000.



To my reckoning the figures come out like this:

Pension if I take it at 65 - £9,300 (LS £13,000)(This would be partly subject to 20% tax as I have a small amount of rental income plus state pension would become payable at 66).

Pension if I take it at 60 - £7020 (LS £11,500)(Tax free until 66 as I intend to pay myself just enough out of my SIPP to take me up to the PA).

I have worked out that as I would get the pension for 5 years longer, I will actually start to go into a "loss" at age 75 when I will be £2,300 pa worse off so I suppose I could be down by as much as £35,000 if I live to 90. But from 66 onwards we will have more than we need with both pensions, State pensions and rental income all in payment (along with a small income from the ISAs). Added into the mix is the benefit from having the lump sums from both the SIPP and the LGPS earlier so that at least some of it could be invested.

I know received wisdom is never to take a DB pension reduced if at all possible but the more I think about it the more it makes sense to me. I have to make a decision on this fairly soon as if I continue to keep paying into the SIPP I will be in danger of having more in there than I can use tax efficiently. Changing over to paying more into the LGPS AVCs and therefore increasing the LS would seem the better policy if I go ahead and decide to plan to take the pension early.

I would be very interested to hear any thoughts people have on this - is there something I have missed? Thanks in advance.

I have to thank you for this as it has changed my thinking a little. My wife too is older than me (by 7 years) and I have a figure in mind that we both need which means I could go at about 57 with dh finishing at 62 (leaving me at work for two more years to ensure the last 2 of the 5 kids get their support through uni/college/whatever). I have two DB pensions and have started a SIPP 12 months ago, low risk for me with my fund choices. May now take one pension at 57 and the other at 62 then state pension at 67 (more likely 69 by then !!) . The SIPP can fill in the gaps ! cheers :beer:

amandajc

chiefie wrote: »

The SIPP can fill in the gaps !

Thanks. I find it pays to keep reworking the numbers and following up on all the alternatives. Sometimes an option that doesn't appear attractive at first sight surprises us when we actually put the numbers through. Good luck :-)

saver861

amandajc wrote: »

Thanks. I find it pays to keep reworking the numbers and following up on all the alternatives. Sometimes an option that doesn't appear attractive at first sight surprises us when we actually put the numbers through. Good luck :-)

Thats very true. Not only did I always get and keep my pension statement, but I used to go through a number of 'what if' scenarios. I would contact the Pension Dept for a statement on those 'what ifs'. I don't think they were best pleased

However, it is important to have all the options on the ready. Even if someone has no immediate plans to retire, once you get close to the 55 mark, circumstances could change etc so being well prepared is always a good thing.

Not only that, options you might have favoured or considered may have changed over time or with new legislation etc. It is very easy to get something lodged in your mind only to find later that the option has ceased/changed/not relevant etc.

AlanP_2

saver861 wrote: »

They are reducing the redundancy formulas though and I think next year it will be the basic redundancy pay without any enhancement.

Redundancy terms within Local Government are authority specific (as they are the individual employing entity) as opposed to generic and are not related to the LGPS rules.

Some employers are paying minimum legal rates, some are enhancing still.

Putting that aside I agree with the sentiment, most are reducing the enhancements as they need to reduce their staff costs.

saver861

AlanP wrote: »

Redundancy terms within Local Government are authority specific (as they are the individual employing entity) as opposed to generic and are not related to the LGPS rules.

Yes that is true. In our case, they used to enhance the redundancy by a factor of 2.2. That then dropped to 1.8 and to 1.6 from last April. From this month it is 1.4 until next April (2016) at which point it will revert to the standard redundancy pay without any enhancement.

I suspect most local authorities will be doing similar.