Early retirement company pension

xylophone

Ask L&G if your pension increases in payment and if so how.

Are you married? If so, is there a widow's pension? How much would this be?

Obtain a state pension statement.

Remember that you could live for another thirty or more years - I have friends and relations who have lived well beyond their ninetieth birthday- one was in her ninety ninth year.

Giving up a quarter of your pension, particularly if it is indexed linked in payment, needs to be examined from this perspective.

With regard to your questions, up to 25% of the value of your pension may be taken as a tax free lump sum - the rest will be taxed as income.

Had you considered taking benefits from your personal pension to supplement your self employed earnings until NRD/SPA, rather than taking benefits from the L&G?

jamesd

For the now case, the commutation rate for the lump sum is 35.32:1. Equivalent to a 2.83% income per Pound of lump sum. For the NRA case the commutation rate for the lump sum is 30.11:1. Equivalent to a 3.32% income per Pound of lump sum. These numbers look like the cost of buying an inflation-linked annuity. Which is a really expensive way to produce guaranteed inflation-linked income.

There is also a specific type of pension called a "scheme pension" and use of those words implies that this is one of them. From the numbers it appears that this is either a pure money purchase pension or it is offering options just like a money purchase pension, with the income produced by buying an annuity at normal annuity rates.

But there's a catch. The increase in the lump sum between now and NRA in 2019 is 32.32%. In just four years at most. That's equivalent to about 7.3% growth a year. That seems too high to be a normal investment growth projection so it seems that there's some added bonus of some sort for waiting until NRA. There's a similar 36% increase in the income but part of that is explainable just by you being older when an annuity is purchased. This means that it'd be good to delay taking money out if you can, to get that boosted growth.

Given those numbers I initially suggest that you:
1. Carry on with your plan to reduce work.
2. Use an equity release mortgage that allows drawing as required to subsidise your income until 2019 and NRA. This is because I expect the cost of this to be lower than the loss from taking money out of the pension to do it.
3. Perhaps combine equity release with use of 0% for spending credit card deals that you eventually repay from the mortgage because this would reduce overall cost if you got the cads while still working a lot.

However, before doing that you should ask them to tell you:
A. Why the increase is 7.3% a year when that's higher than normal investment growth.
B. Whether you can now transfer out just enough of the money you'll need to another pension, so you can use both the tax free lump sum and taxable part from the transferred amount to subsidise living costs until NRA.
C. What the anticipated transfer value would be at NRA.
D. Whether the income quoted is from buying an annuity and whether you can transfer all of the remaining pot at NRA to fund you deferring your state pension. This is because deferring the state pension increases your state pension entitlement by 5.8% inflation-linked for each year of deferring. That's far enough above the 3.32% to make it likely to be the best way to increase your guaranteed income, paying you more per Pound of value than taking the income from this scheme.

If you can do those transfers, particularly the one at NRA, then that would be the best way to go. Even better if you can take some now or do some transfer now because that for only part of the money probably would be cheaper than the equity release mortgage cost (setup and interest, probably costing a bit more than the 7.7% growth loss).

Best case if you can do it is the partial drawing/transfer out now then transferring out the rest at NRA to defer your state pension. The amount to transfer out and your expected state pension will determine how much deferring is sensible because there are limits on how long deferring makes sense.

If inheritance or having some capital for contingencies is important to you the transfer out option would give you the ability to use some income drawdown and provide for that desire as well, at the cost of less guaranteed income, but probably more income that could drop below the guaranteed level if market conditions had a long-sustained bad period.

So more questions for them but if all works out well you should be able to do what you plan and use state pension to get a substantially higher income than they have been telling you that you could get.

xylophone

Another thought, the lump sum for pension foregone seems very high - I am wondering whether there was a right to a higher than 25% pension commencement lump sum built into the arrangement.

At all events, the PCLS is tax free.

beardiedog

Thanks xylophone.

I'm single. Originally, with Godwins, it was a dependent's pension - my mother - but she passed away just before Christmas. The illustrations now state it's a spouse's pension. Anyway, neither would apply to me now so it's academic.

The personal pension isn't great but it's something worth considering. I'll look into that and also get a state pension statement.

beardiedog

Thank jamesd.

Wow! Such a lot of information to digest and think about. It's even more complicated than I imagined. I obviously need to put some careful thought into this.

Thanks so much for all your help, I'll let you know how I get on.

xylophone

I hope you'll let us know your decision.

I imagine that a stressful job combined with the loss of a surviving ( and dependent) parent must be the factors which are causing you to take a "life audit" as it were.

Not having anybody else to consider does give you more latitude I think - you don't have to worry about whether moving house would cause complications for a spouse's job or make visiting an elderly relative more of a chore than a pleasure.

If you are moving, will you also be realising a lump sum over and above the value of the property you will be buying? This, too, could be used to supplement part time income and hold off applying for the scheme pension?

jamesd

xylophone wrote: »

Another thought, the lump sum for pension foregone seems very high - I am wondering whether there was a right to a higher than 25% pension commencement lump sum built into the arrangement.

It's not impossible but the numbers fit annuity purchase so well that I think that's really what is happening.

A bigger concern for me is the amounts for deferral of state pension. It depends somewhat on how high the state pension is but even £89k is a lot to be using for deferring. The whole pot would be four times that, and probably not viable for deferring all of it.

However, an open market annuity purchase if there is some medical condition that reduces life expectancy, would probably pay more than this pension for a given purchase value and there's also the chance to combine some level annuity, some deferring and drawdown.

Asking whether partial transfer are permitted would also be good because that would be another possible way to address the issue, though I have reservations about whether the apparent annuity price is really going to be the best available on the market. So a transfer then open market buy might work out best anyway.

Still really in the fact gathering stage at the moment even though some possible approaches have been mentioned.

beardiedog

12 months later...

In the end I decided it would be best to leave my company pension until my NRD of July 2019.

My state pension will commence from May 2020 (65 years 10 months).

I have reduced my workload to a manageable level but I still earn enough to have a fairly comfortable lifestyle.

I have a personal pension which is approaching my SRD July 2016 which I'm thinking of taking the whole pot (c£21,500) now as I'll have the other two pensions available to me in a few years time which together will be around £23,000 p.a.

Does this sound like a reasonable plan?