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

robin61

Linton wrote: »

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:

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

Option 2:

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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.

If you live to a ripe old age there will be a net gain for sure. But you might not live that long.
If the reduced DB pension is still easily enough to live on especially with the State Pension to come I am not convinced it makes sense to defer. I don't think I would spend decades regretting the decision if I was still living well on the reduced pension and state pension. If the 50k was spent and the 7.5k was not enough to live on then yes probably that is a different matter.
Although I do see the points you mention are valid (which is why this is not an easy decision for me anyway) I think a lot depends on individual circumstances.

Linton

robin61 wrote: »

If you live to a ripe old age there will be a net gain for sure. But you might not live that long.
If the reduced DB pension is still easily enough to live on especially with the State Pension to come I am not convinced it makes sense to defer. I don't think I would spend decades regretting the decision if I was still living well on the reduced pension and state pension. If the 50k was spent and the 7.5k was not enough to live on then yes probably that is a different matter.
Although I do see the points you mention are valid (which is why this is not an easy decision for me anyway) I think a lot depends on individual circumstances.

The Life expectancy for a male aged 60 now is around 87. So unless you have a seriously life shortening illness it seems prudent to plan on an age of death of at least 95 - there is a 25% chance of living that long.

The "might not live that long" argument seems flawed to me if there is nothing to justify this. If you die early you wont know that it has happened and wont care as you will be dead. If you live longer than you planned you run the risk of poverty in extreme old age which doesnt sound like fun.

I agree with you that which way you go depends very much on your circumstances. A purely financial judgement would probably be to take the pension at its due date. But other factors may outweigh this.

atush

zagfles wrote: »

They said..

And again I said i appologize for getting it wrong. You want it in blood or what?

robin61

Linton wrote: »

The Life expectancy for a male aged 60 now is around 87. So unless you have a seriously life shortening illness it seems prudent to plan on an age of death of at least 95 - there is a 25% chance of living that long.

The "might not live that long" argument seems flawed to me if there is nothing to justify this. If you die early you wont know that it has happened and wont care as you will be dead. If you live longer than you planned you run the risk of poverty in extreme old age which doesnt sound like fun.

I agree with you that which way you go depends very much on your circumstances. A purely financial judgement would probably be to take the pension at its due date. But other factors may outweigh this.

I think the key point here is whether the decision leaves you vulnerable to the prospect of living in poverty. I agree that would not be a risk worth taking.

atush

Linton wrote: »

The Life expectancy for a male aged 60 now is around 87. So unless you have a seriously life shortening illness it seems prudent to plan on an age of death of at least 95 - there is a 25% chance of living that long.

The "might not live that long" argument seems flawed to me if there is nothing to justify this. If you die early you wont know that it has happened and wont care as you will be dead. If you live longer than you planned you run the risk of poverty in extreme old age which doesnt sound like fun.

I agree with you that which way you go depends very much on your circumstances. A purely financial judgement would probably be to take the pension at its due date. But other factors may outweigh this.

I dont understand the whole I wont live that long thing.

If not basing this on your on actual LE. which most people dont bother or even understand.

You cant base your own LE even off immediate family unless you carry their same lifestyle risks? do you smoke 20/40 day? My parents smoked 40. I smoke 0.

Eat fresh fruit/veg? White meats? Dont fry all the time?

exercise? sport?

zagfles

atush wrote: »

And again I said i appologize for getting it wrong. You want it in blood or what?

You asked me to point out where you misread it. So I did. Seriously, take a chill pill! It's really not a big deal.

Thrugelmir

saucer wrote: »

as an addition to a good public sector DB pension which will kick in around 60 (I am currently 47).

Not been changed to Normal Retirement Age ?

chiefie

A bird intendant a better than two when you are six foot under �� do what is right for you

GunJack

Thrugelmir wrote: »

Not been changed to Normal Retirement Age ?

If you remain in Classic you retain the NRA for your grade, plus if you are deferred (like me) it stays payable at NRA for your grade, in my case 60

Brogden

atush wrote: »

And again I said i appologize for getting it wrong. You want it in blood or what?

I believe it is the innocent use of the word 'open' used by the OP in connection with 'starting' or 'commencing contributions to' a SIPP which caused the confusion here.

It would be unusual for a person to walk into a bank and ask to 'start' a bank account. It may cause chuckles from the noble and highly financially-educated people. It would be much more normal to request to 'open' a bank account.

However, where SIPP's and other pensions are concerned, to 'start' a pension may seem quite a basic but generally acceptable way to state one's intentions to make contributions to a new plan.....although it could of course mean to elect to start receiving benefits too. It is however reasonable to assume that the use of the word in this context would allow one to escape ridicule and/or being picked on by any of the noble financially-educated people referred to earlier.

The confusion, I am sure has been caused by the use of the word 'open.' If one were to ask oneself what a person really meant if they said they wished to 'open a SIPP,' it could well be that the person was 'opening' an existing SIPP in order to take something from it, in the way that one may open a kitchen draw to take from it a spoon, ladle, fork or other kitchen utensil. In the case of an existing SIPP, one may be opening it to take from it a pension commencement lump sum, a flexi-access drawdown payment (or payments) or indeed an uncrystalised pension fund lump sum.

I do hope this post helps any person who reads it.