Taking a SIPP at 55 while entitled to DB pension at 60

saucer

...I apologise in advance for what are probably stupid questions...

I am thinking of opening a SIPP this year as an addition to a good public sector DB pension which will kick in around 60 (I am currently 47).

I am wondering if I choose to take the SIPP at 55
a) will taking 25% of the lump sum affect my DB lump sum ( which is calculated as 3 times my pensionable pay at 60)
b) there are any other obvious problems with taking a SIPP early, while continuing to work...i.e. does this break any rules....I am hoping it will facilitate me going PT in my late 50's

Sorry again if this is thick;) and thank you

Linton

A SIPP would be completely independent of your DB pension. There is no problem with withdrawing money from a SIPP from age 55. Using a SIPP is an efficient way of covering the gap between retirement and being able to take a full DB pension.

Secondary points
- beyond the 25% drawdown from a SIPP is taxed as income. Check you dont inadvertantly go into a higher tax band.
- if you have a high value DB pension check you arent anywhere near the lifetime pension allowance reducing to £1M in 2016.

atush

I agree, taking a DC pension ie a sipp or PP at age 55 instead of taking a DB pension early is a great thing.

I just have a question as to why you think you can take a pension at your current age of 47?

zagfles

atush wrote: »

I agree, taking a DC pension ie a sipp or PP at age 55 instead of taking a DB pension early is a great thing.

I just have a question as to why you think you can take a pension at your current age of 47?

The OP never mentioned taking the pension at 47. The OP's plan seems to be to take it at 55.

frugal90

We have a similar plan, and it makes sense. You can draw up to the personal allowance tax free + 25% as a series of drawdowns. I plan to use the whole of my Sipp for that purpose - then take dba pension at age 60- Mrs frugal will do the same albeit 6 years after me.

atush

zagfles wrote: »

The OP never mentioned taking the pension at 47. The OP's plan seems to be to take it at 55.

Sorry, this leads me to believe otherwise as they are currently 47?

I am thinking of opening a SIPP this year as an addition to a good public sector DB pension which will kick in around 60 (I am currently 47).

Please point out to me where I misread this?

weenie15

I've read it as:

- they are currently 47
- they want to start a SIPP which they can then start taking at 55
- they have a DB pension which they can take at 60

atush

I miss read it then, thought they were talking about opening it and then taking it.

However my previous advice stands, it is a great idea to do this to retire early w/o taking your DB pension early and therefore reduced at a terrible rate.

robin61

I still struggle with this one and will probably continue to do so. Nobody likes an actuarial reduction but you also need to take into account that it will cost the OP 5 years of lost pension payments he could have had.
I did the sums and for me going 4 years early and taking a reduction of about 5% for every year I go early. By the time you allow for lost compound interest on the money it costs you in the first few years i reckoned it would take the best part of 20 years to make a profit on deferring. By then you are in your mid 70s at least and are in receipt of a State pension. This will mean for me anyway a surplus of income over expenditure in later years and I think it is generally agreed you normally spend less when you are older and less active so will need less not more.
I really don't think this is a straight forward choice at all. Why not have the money while you are young enough to enjoy it ?

zagfles

atush wrote: »

I miss read it then, thought they were talking about opening it and then taking it.

They said..

... if I choose to take the SIPP at 55

Linton

robin61 wrote: »

I still struggle with this one and will probably continue to do so. Nobody likes an actuarial reduction but you also need to take into account that it will cost the OP 5 years of lost pension payments he could have had.
......
I really don't think this is a straight forward choice at all. Why not have the money while you are young enough to enjoy it ?

Lets do a simple calculation...

Assume at 55 you have a £50K SIPP and a DB pension that delivers £10K/Year from 60 and that your life expectancy is 90. We can ignore inflation for the time being. Assume you need £10K/year

Option 1:

---

Spend the £50K to live for 5 years and then take the pension at 60 = happiness

Option 2:

---

Take the pension now and try to supplement it from the £50K. The pension is reduced by 5%/year.

pension income = £10K - 5 x 5% =£7.5K
So we need an extra guaranteed income of £2.5K annually for 30 years. Can £50K provide this, inflation linked? The data suggests it can't safely, 3.5-4% is often taken as a safe-ish long term drawdown.


I disagree with the "spend it now when young enough to enjoy it" philosophy. When the money's gone its gone and you have possibly decades of regret. A distant memory of a good time doesnt help much now. To me the main benefit of wealth isnt more immediate pleasure, double the expense doesnt provide double the enjoyment. Rather it's security and the removal of any need to worry about the future. In any case if you have the money why should an expensive cruise when you are 80 be less enjoyable than one at 60? A more sensible approach in my view is to maximise a steady income.