Help - confused!

bouncydog1

I have 2 non contributory schemes from old employers. Both have an NRD of 60 and no widow's provision. I am in my current employers final salary scheme and have a few years to go to 65. I am thinking of taking the 2x lump sum options and reduced pensions at 60 and investing proceeds. Existing scheme is closed to transfers.

I have been told I should defer until 65, but i'm wondering if I should go for the certainty. I haven't asked if deferring until 65 is an option yet. My tax rate won't change. Any suggestions please?

jamesd

What was the reason given for telling you that you should defer until age 65? Was that guidance given by a person familiar with the two pensions concerned or was it generic guidance from a person not familiar with them and their normal retirement age, who might have assumed it was 65?

Taking a defined benefit pension at its normal retirement age is normally the best option. Some don't increase future payouts at all if you defer, others do but perhaps not enough to compensate for the time not taking it. If one of yours is of the no increase type it would normally be very foolish to defer taking it beyond NRA because it'd gain you nothing and lose you the income you would have had while deferring.

Whether to take lump sums depends on the commutation rate between income and lump sum. Some schemes have mandatory minimum lump sums but aside from that a choice can be made. Usually it is better to take no lump sum and a higher income then use the income to repay borrowing if a lump sum is desired.

Taking the lump sums and reduced pension to invest would normally be unwise but exceptionally good investors might benefit from doing it. How good or bad it is depends on the commutation rate and investment plans. Typically the person would need to get more than perhaps 6% plus inflation from their investments and that is quite hard to do without risk - while the pension money is normally risk free.

We really need to know more about the specifics of deferring and commutation rates to comment specifically based on your particular pensions. While I've given good generic guidance the specifics can overrule that.

bouncydog1

Thank you very much for your speedy reply. The amounts involved are not huge (unfortunately) but as I paid nothing towards them, they are definately worth having!

The "advice" was just from a conversation with a friend who was in a similar situation - however there was an option for her to defer NRD to 65.

I will go back to the scheme trustees and ask for some more information.

I was also thinking, that as there is no widow's pension, this would guarantee something for my OH if I popped off before the pension was paid.

xylophone

I take it that these were defined benefit schemes.

If so, I am surprised at the lack of provision for a widow.

If the Scheme Retirement Age was 60, it may not have been to your benefit to have deferred beyond this - while some schemes have late retirement increases, others do not. Your scheme booklet should give the information but if not, you will need to consult the Scheme Administrator.

Does your wife have her own pension provision?

jamesd

Check out term life insurance. It's very cheap for those who are in normal good health at your sort of age.

atush

You vould take the pensions, and contribute the income 9as you are still working) plus any extra you can spare, into new DC pensions. One for you, and one for you spouse- who if not working, can still contribute 2880 each year to a pension that the govt will boost to 3600.

she will then have a- her own pension, b- can inherit your entire DC pot tax free.

Other options could be (if no spousal provision) ask for a CETV value for each small DB pension. With a consideration to transfer to a DC pension.

kidmugsy

It might be worth checking your widow's provision: long ago schemes often didn't offer any, but legislation (Thatcher era I think) then insisted on it.

bouncydog1

We both have current DB schemes and private pensions. I have obtained transfer values to put into private scheme so I will contact the private scheme provider to see what the options are for transfer. Thank you all for your help.