Dimwit (Me!) Needs Early Pension Advice.

Faston

I wonder if anyone could kindly help my wife with what is probably a simple and common dilema? (She is more 'switched on' to this sort of thing than me but I thought it couldn't hurt to check the wise minds on this site).

She is considering taking her pension 3 years early has been given the option to take a FULL AMOUNT OR A LUMP SUM AND REDUCED PENSION.

Does anyone have advice, guidance or experience of this sort of thing please?

Appologies if this has been discussed before but I'm still finding my way around the site.

Kind regards.

F.

EdInvestor

Hi Faston

If you post a few figures it would help.

dunstonh

Under current tax rules its usually best to take the maximum tax free lump sum and, if necessary, invest it for income in tax free or more tax efficient investments. You also get to have capital ownership which you do not get with the pension income.

However, post away some figures like Editor says as there are some exceptions.

Pal

You also need to post your wife's age. A lot of scheme's cash conversion factors eliminate the tax advantages of taking cash, so figures are needed to give an answer.

Faston

My wife is a lovely 56 (57 this year).

She has been offered £10.000 pension OR reduced £8.000 pension + lump sum of £27.500.

Her predicted pension at 2008 at age 60 is £13.200. Preserved pension £8100.00.

She will also continue full time salary employment at £17.900.

We understand that the standard tax rate applies.

roger56

If it is a private company pension scheme (final salary?) you need to consider if the pension fund is well funded and if the company trading well.
Basically for private pensions if things go wrong the usual pecking order for money is:
-current pensioners first
-then deferred pensioners (ie those who have left the company or left the scheme)
-those working and contributing to the company pension.

Also, standard rate tax applies up to the allowance for the next tax band then it's taxed at the next rate.

and another point, can you take the company pension and still work for it? Normally that's not allowed - check the rules.

Debt_Free_Chick

roger56 wrote:

If it is a private company pension scheme (final salary?) you need to consider if the pension fund is well funded and if the company trading well.
Basically for private pensions if things go wrong the usual pecking order for money is:
-current pensioners first
-then deferred pensioners (ie those who have left the company or left the scheme)
-those working and contributing to the company pension.

Except that's all been overtaken now by the Pension Protection Fund

In general, security of the pension scheme/employer is less of an issue now, than previously.

roger56

Debt_Free_Chick

We'll see how the Pension Protection Fund works out. It is new at the moment until funds build up. I hope it works.

I would however suggest Faston to check that your particular fund is eligable, don't assume it is. Ask the fund managers directly. The website keeps mentioning "members of eligible defined benefit occupational pension schemes".

There is also a cap on the Pension Protection Fund so Faston needs to consider this.
If his fund provides more than the cap then that should be taken into account with the decision. The cap is age adjusted as well, see the faqs on this:
http://www.pensionprotectionfund.org.uk/index/faqs.htm