Retirement arrived earlier than expected

Worried_of_wakefield

Hi all, having taken redundancy at the age of 61 I've decided to blast off into the great unknown world of retirement.

As this has arrived earlier than anticipated my revised plan of action is as follows-

Defer my DB pension until age 65 by living off savings and a DC pension ( approx. 45K) I calculate I need to take 10k per tax year from the DC pension pot by I assume draw down.

Everything is paid for and am in excellent health, plus I am more than comfortable once I reach 65/66, I just need to live within my means for the next 4 years.

What should I expect in the way of procedural and cost implications in accessing this DC pension fund ( Friends Life)?

Any other opinions or pointers would be most welcome

atush

First off, how much is your redundancy payent? If over 30K, and therefore taxed, add the over 30K portion to your DC pension. For both a boost, and to save tax.

I fact, nothing stopping you adding up to all your earned income this tax year to the DC pension, to get the TR uplift (and you can get 25% of the whole pot tax free).

Contact Friends life and ask if they do Drawdown (by phone initially). If they dont, as I suspect, then ask for forms from FL and investigate who that does DD you want to use so you can get ready to transfer the lot. Then instruct the new company to arrange the transfer and put the fund into DD with your 25% TFLS being processed immediately.

Worried_of_wakefield

Thanks for this Atush, sadly redundancy payment not worth mentioning, therefore savings and 45k DC pot has to last me the next 4 years, what would a typical fee figure or % on the 45K I should expect and is this fee weighted heavily due to the fact I intended to draw down quickly?

bigadaj

There's a range of charges from many funds and providers, if you search for snowmans spreadsheet this guve so an indication of typical charges, some are percentage and some are flat rate, so it takes a bit of work to work out which is best.

As atush says, ring them up and ask fl if they do drawdown, probably not on an old style contract but they may transfer it, and enquire about charges and work from there. They won't be giving you financial advice as they can only sell their own products, think of it walking into a car showroom, the can sell you what they have but won't tell you about a better deal down the road.

You'll presumably wnat to invest in cash funds or near equivalents due to the short term horizon and you're low capacity for loss given the pot will almost be exhausted in your anticipated timespan.

mgdavid

you could transfer the DC pension into a SIPP, transfer free and SIPP charges minimal depending on who you go with . Hargreaves Lansdowne seem to come out best for small-ish pots. As you want to drawdown over 4 years and as inflation is at a record low, you might consider not investing but leaving it in the SIPP as cash thus avoiding investment charges and the worry of having to choose investments yourself.

saver861

Why are you deferring your DB pension?

Is it down to the actuarial reductions? If so, consider if it is in fact worth it. Check out the time to break even and weigh up whether it is worth the wait. Can be as much as fifteen to eighteen years, depending on various factors etc.

Worried_of_wakefield

Thanks all, lots to ponder on.


Saver861, you've thrown me a curved ball there!, your probably getting a little deep for my pea size intellect!, the db pension ( 28 years contributions) has already been frozen for 10 years, periodic forecasts I've received so far suggests little change at age of 65 assuming I leave it that long. my 'simple' plan was to survive by other means to max out the db pot, is there a better way?


Again thanks for your help

saver861

Worried_of_wakefield wrote: »

Saver861, you've thrown me a curved ball there!, your probably getting a little deep for my pea size intellect!, the db pension ( 28 years contributions) has already been frozen for 10 years, periodic forecasts I've received so far suggests little change at age of 65 assuming I leave it that long. my 'simple' plan was to survive by other means to max out the db pot, is there a better way?

All I was meaning was by not taking your DB pension, are you sure you are making the best decision?

In other words, if your Normal Retirement Date is 65 for your DB then you would lose around 5% annual pension for each year you took it early. So if you took it at 63, then you would lose roughly 10% of your annual pension - but, you would have two years of pension payments in hand.

Lets say your pension payment was £10k at 65. If you took it two years early then it would be £9k. However, by the time you reach 65 you have already drawn £18k. Thus it would take 18 years to reach the break even point - in this simple example.

There are other things to take into account so its not necessarily that simple. However, you need to be aware of the best situation for your circumstances and indeed to ensure the date you can draw the pension without reduction. Depending on the scheme, it may not be when you are 65.

GunJack

Worried_of_wakefield wrote: »

Thanks all, lots to ponder on.


Saver861, you've thrown me a curved ball there!, your probably getting a little deep for my pea size intellect!, the db pension ( 28 years contributions) has already been frozen for 10 years, periodic forecasts I've received so far suggests little change at age of 65 assuming I leave it that long. my 'simple' plan was to survive by other means to max out the db pot, is there a better way?
Again thanks for your help

DB doesn't usually have a "pot", its just an amount per annum, possibly with an automatic lump sum. What saver is referring to is reduction for taking it early, i.e. before the scheme's normal retirement age. This is usually given by x% reduction (typically 5%) per year taken early, so if you took it 4 years early, it would be reduced to 80%. Ask the scheme administrators about the detail on this, it varies between schemes but the principle holds. If you're really lucky, you may be able to draw it now with no reduction...well worth investigating...

GunJack

oops, ninja'd by saver861

mgdavid

also remember that if you remain in the excellent health you have now, at 65 you should expect to live a further 25 years. While the DB pension will rise with CPI or RPI, there is very often a cap (e.g. 5%) and who can guarantee that inflation won't exceed 5% in that 25 years? Therefore the safetynet is to maximise the DB pension, not reduce it. They are not called cast-iron and gold-plated for nothing!