Council or Private Pension at 55 - update please

onesixfive

I posted a thread on here a couple of months ago & thank you for your advice:
https://forums.moneysavingexpert.com/discussion/comment/68695595#Comment_68695595

Basically....
I intend to retire at 55 next year. Council Current statement shows annual pension at 2021 would be £9300, & retirement grant would be £28k. I left the Local Govt Pension Scheme in 2006, My current employer wont have a pensions scheme until Aug 2016 (by which time I hope to be gone).
I was advised by the council "Because you deferred your benefits before April 2014 the earliest that these can be released as a pension is age 60.
Your other option is to transfer benefits to a scheme that provides 'flexible benefits'."

Since then I have made enquiries & been told by the Council Pensions dept:
"The 85 Year Rule is being removed from the scheme but it allows members who's age and service in whole years totalled 85, to take their benefits after the age of 60, unreduced. However as you mentioned below under freedom and choice you have the option of transferring to a scheme that is a defined contribution scheme that provides flexible benefits for you to access at 55".

I have now received my transfer value from the LGPS and would like opinions and ideas on value please:
The current transfer value to a registered pension scheme is £185k

• Am I right in assuming that this will give me 25% tax free (£46.5k), but then what is the best deal per month that the remaining £139.5k will buy me pension?
• This looks like a bigger lump sum (which I could also invest some) but potentially smaller pension than the council "deal" (albeit I know am taking this 5 years earlier)
• Also with no other income, this monthly pension could be tax-free until I get my state pension at 67 - or later?

jem16

sng165 wrote: »

Am I right in assuming that this will give me 25% tax free (£46.5k), but then what is the best deal per month that the remaining £139.5k will buy me pension?

It would give you a tax free lump sum of £46.25k. If you were to drawdown you could safely use 4% so a pension of around £5550.

This looks like a bigger lump sum (which I could also invest some) but potentially smaller pension than the council "deal" (albeit I know am taking this 5 years earlier)

It's only a bigger lump sum than the LGPS as the automatic lump sum isn't the full 25%. You could take more by commuting some pension but at 12:1 it's a dire rate and keeping the valuable index linked pension is usually better.

Also with no other income, this monthly pension could be tax-free until I get my state pension at 67 - or later?

Yes it would but so would your LGPS.

Basically you are choosing between guaranteed index linked pension income and investment risk based pension income. If you were to choose an annuity with the same features - ie index linked and spouse pension - then you will get far less by transferring.

kidmugsy

Is your health good? Your husband's? What is the index-linking deal on the LGPS pension?

The case for transferring out of a DB pension is always stronger if one or both of the beneficiaries expects a short life, or if the index-linking has a low cap. Otherwise it can look a poor deal, as this offer seems to me to be. You would be giving up a £9.3k p.a. index-linked pension (deferred for 5 years, it's true) in return for £139k capital that you'll have to manage, bearing all the investment risk. That capital sum is only about 15 times the annual pension forgone. So you'd be betting everything on either living a far shorter life than the average woman of 60, or on making a high investment return.

Is there any way you could bridge the gap to age 60 without taking a CETV? For instance, by juggling interest-free credit cards? Spending some of your savings? Taking out a small mortgage on your property?

atush

I agree with Kid,

try and find a way to get to 60 w/o taking it early. Whack as much into a private pension now as you can. Maybe work an extra 6 months-1 year and put more into a DC pension.? Use savings, 0% CCs for daily spending.