Theoretical Questions about my Pension

cloudy-day

Hello helpful people. I am nearly 50, and as my DH is approaching 60 my thoughts have turned to retirement. I’m lucky enough to have worked for Companies that have offered good pensions, but I’m not sure about my options. I have a meeting with a Financial Advisor in the next few months arranged by my employer, so I have dug out my Pension paperwork in preparation.

Now please excuse my ignorance. I always chucked any spare cash into my employers Pension scheme, and expected to retire at 60. But now I’m wondering if I have any other options so I need some information.

My ‘main’ Pension is a Final Salary Scheme from a well-paid job I left a while ago. I was there for nearly 20 years. This one has a calculator online, and having a play around with it, I was surprised to see that I could take it from age 50. I know that the pension age was raised to 55 but I’m wondering if this Scheme has a lower retirement age? I am going to call them tomorrow but would that be possible to take it age 50?
Should say that this is all theoretical – but I want to look at all my options. It doesn’t seem much lower if I take the pension at 50, 55 or 60. I assume if I take the pension while I’m still working then this will be part of my taxable income? I’m a 20% tax payer with plenty of space before the 40% rate.
If I take the pension at age 55 is the lump sum taxable, or is it added to any money I earn that year?

Thanks in advance. The reality is that I will probably need to work until I’m 60 but I’m wondering if I could take some of the pension earlier and reduce my hours.
I will be discussing this with the Financial Advisor, but am embarrassed how little I know about my pension.

Many thanks

molerat

Some pensions retained the right to be taken below age 55.

The pension commencement lump sum is not taxable.

All other pension payments become part of your income for tax purposes.

Some pensions are quite generous with their early retirement figures. One of mine had a NRA of 65, nil reduction if taken from 60 and a 1% reduction PA from age 55 - 59 !

cloudy-day

molerat wrote: »

Some pensions retained the right to be taken below age 55.

The pension commencement lump sum is not taxable.

All other pension payments become part of your income for tax purposes.

Some pensions are quite generous with their early retirement figures. One of mine had a NRA of 65, nil reduction if taken from 60 and a 1% reduction PA from age 55 !

Oooh, so I could in theory, at 50 (or any age onwards) take a lump sum which would be non-taxable, then take the monthly pension which would be taxable?

Interesting, its nice to know that I have options.

PeacefulWaters

Some older schemes will allow you to take your pension as early as 50. But expect to see a significant reduction in value, typically 50%, as a result.

Usually best to wait until scheme age to collect (unless health or life expectancy is poor) and build up alternative provision to allow early retirement.

cloudy-day

Good advise, thanks.

I've always thought that I HAVE to work FT till 60, it will be easier knowing that I have options - even its just a few years of PT before retirement.

Though saying that, the my work colleague is 65 and shows no sign of stopping.....

brewerdave

The scheme molerat refers to, is unusual! When I looked at my options when I was 50 and newly redundant, my main pension (NRA of 60) was going to apply a reduction of 4% per year under 60 -I believe this is a more normal rate of attrition!!

molerat

It certainly does not offer those rates any more - I was one of the last to take advantage pity it was only a small pension.

cloudy-day

I think my main queries were:
1 is it possible to take the pension at 50? The answer seems to be yes
2 what are the tax implications? So lump sum tax free monthly payment not

If this is a good or terrible idea is of course a different question!

atush

1, maybe, maybe not. Check with your admistrators. ASk them the actuarial reduction per year taken early. 5% is typical, so would mean a 50% reduction for taking it that early even if available. If the reduction will be lower, get back to us.


2, anything over the TFLS will be taxable as income. So either basic or higher rate depending on total income. Taking pension incoem early, and taxed when you dont Need to is seen as unwise as you pay too much tax. If you wait until you are retired, you will have a PA of 11K or more which means you wont tax any income tax until you are getting mroe than that. Paying more tax than you need to is also seen as unwise.

Generally speaking, it is better to use DC pensions like personal pensions or Sipps to save into to provide income for early retirement.

jamesd

Find out what the "normal retirement age" of the defined benefit pension is. That's the age at which you can take it without a reduction for taking it early.

If the pension is not taken at NRA some schemes will increase the amount payable but this isn't likely to be as good a deal as taking it at NRA.

The lump sum will be tax free. The ongoing income will be added to your normal taxable income and paid through PAYE.

Provided you've reached NRA it's OK to take this defined benefit pension.

If you don't mind locking up the money until you're at least 55 you can use some of the extra income for more pension contributions and get tax relief on that money. You make a tax gain on the 25% tax free lump sum you can eventually take and if using salary sacrifice, on the NI savings on all of the pension contributions you make.

Alternatively the money can be used to find pension contributions for your husband who has immediate access to personal pension money because he's already 55 or older. He could take out 25% tax free lump sums from the money paid in, perhaps once a year or two. That won't affect his ability to make more pension contributions. If he was to take any of the remaining 75% his Money Purchase Annual Allowance for pension contributions would be reduced from £40k to £10k. He might also get a better income tax and/or NI gain than you, depends on your tax rates now and when you take out taxable money and whether either of you is in a salary sacrifice pension scheme.

cloudy-day

Thanks. All good info to help when I see the Financial Advisor.

I'll ring up re the Scheme and find out more details.