Defined Benefit Scheme NRA 60 but intend to work until 65?

xylophone

50% protected rights.

Protected rights are no more - these are just ordinary pension rights now. http://www.bfpltd.com/2012/07/protected-rights-pensions-abolished-end-of-an-era/

"The funds built up by the contracted out payments – from whatever source – remain invested in your pension arrangement, but they are no longer subject to special treatment as ‘protected rights’. This is mostly good news. For example, it was not possible to draw a 25% lump sum from protected rights, but as protected rights have now disappeared, so has the restriction. Similarly, the requirement to provide for dependant’s pensions is no more."

jamesd

DaveAB wrote: »

The DBS document, which I received a few days ago, has given me 2 basic options:

1) An annual pension of: £12,023.37 (19.23% of LTA)
2) A tax free lump sum of £58,709.83 plus an annual pension of: £8,806.41 (18.78% of LTA)

Pension reduction is £3,216.96. 58709/83 / 3216.96 = 18/25:1 commutation rate. That's reasonably decent as commutation rates go but still a bad deal compared to the higher income.

That's ignoring income tax. I'm assuming that you won't be a higher rate income tax payer in retirement so the tax doesn't matter too much. If you would be, the tax free lump sum being tax free could be a good choice if you invest it in tax free investments to produce tax free ongoing income. The commutation rate is roughly equivalent to a 5.48% income target, before tax. So around 4.38% from tax free investments for a basic rate tax payer. That sort of level is achievable, and/or will be, from P2P and or general investments in an ISA. So it doesn't look particularly bad to take the tax free lump sum and could well be best if you'll be higher rate in retirement, or even not, depending on how you use the money.

DaveAB wrote: »

I have been contributing roughly £175 a month gross to the current employers's DCS.
I think my employer contributes likewise.
This has been the case for the last 4 years although I have been contributing slightly smaller amounts to this DCS for about the previous 4/5 years - roughly 8/9 years in total.

OK, I think that it's reasonable to conclude that your expected pension contributions are £175 a month plus the whole new income from the DB pension. So 174 * 12 * 2 (for the employer part) + say the 8086.41. A total of £12,242.41 a year. And on top of that over this tax year and the next two you could also pay in 1/3 a year of 30% of the total value of all lump sums taken without breaching the recycling rule. Say lump sums of 58709.83 + 25% of 60,000 = £73,709.83. 30% of this is £22,113.94 and 1/3 of that each year would be £7,370.98 a year. So I think that there's no real prospect of recycling rule trouble if you increased your pension contributions to 12242.41 + 7370.8 = £19,613.39 a year, including any employer portion.

Of course you could do more, that's just the level that seems clearly within the recycling rules and with low potential for trouble.

kidmugsy is right about the theory that the rules aren't designed to trap the unwary but the examples given of breaching the rules are for quite banal amounts of money. I'd be far more confident in that sort of assertion if the amounts in their breaching examples weren't so routinely encountered in day to day pension pot sizes.

Given your income and the potential income from the pension and pension lump sum capital I suggest that you take the maximum DB lump sum and the older DC lump sum and up your pension contributions as far as you can - well, at least up to 19613, more than that is dependent on your thoughts on the recycling rule - and take the 25% tax free lump sums from the new money out regularly to help to continue this for as long as possible. The tax relief gain is significant and should nicely help your financial position.

DaveAB wrote: »

My private pension, from previous self employment, is roughly £60,000 with about 50% protected rights.

As xylophone wrote, protected rights restrictions were abolished a few years ago and that's just pension pot money like any other.

pjread

Hmm, not so sure. I for one would buy £3200/yr inflation linked with decent survivor rights (50%? I'm making assumptions admittedly!) from age 60 for 58k. I don't think there's any chance of getting that kind of rate on an annuity in the open market is there?

I'd take the full pension, then just channel the lot into a DC scheme/SIPP once you start getting it - or as others said, salary sacrifice an equivalent amount if that's an option for you.

GunJack

how useful would a £58k lower mortgage be??

TH1878

Most DB schemes offer a late retirement factor (i.e. they increase your pension) - have you asked them what this is at age 65?

Edit : I've read the OP more thoroughly. Are you sure the confusion isn't in the wording of the question? You can't change the NRD on a final salary scheme - it is set by the scheme.

You can usually take late retirement and you usually get an enhancement for it.

DaveAB_2

TH1878 - many thanks - I will rephrase the question to the scheme admins.

DaveAB_2

Many thanks for everyone's assistance - very much appreciated.

NB Can anyone point me in the direction of a formula to determine a monthly net AVC from a gross (inclusive of any tax relief etc...) contribution figure? Basically so that I can work out what to pay as an AVC each month to balance out the roughly £8,800 per annum pension/12. Obviously the pension income will be taxed at 40% but presumably that will be roughly recouped via the tax relief on the AVC?

DaveAB_2

Sorry, what I mean is that I want my net income (new net pension, plus net salary after AVCs) to roughly balance out to the current net salary level.

jamesd

Try plugging numbers into http://www.listentotaxman.com/ until you get the desired result. For salary sacrifice reduce the gross wage and do not enter a pension amount.