What to do with pension ?

Euryalus1978

I am about to take my DB pension, at the age of 57, due to being outsourced, if I don't access it I have to wait until I'm 65 which I don't wish to do. I intend to carry on working with my new employer until 60 yrs of age so will be paid a monthly pension from my DB scheme plus my monthly salary which will put me well over the 40% tax threshold.
I'm thinking that the best/easiest way to avoid extra tax is to put my monthly DB pension into my new employers pension fund or put it into a SIPP. I also have a DC pension with my current employer as they closed the DB scheme a few years back-I understand that this will become deferred until I want it-could I put my monthly DB payment into this scheme or is that foolish anyway ? I will also be taking a 25% lump sum as part of my DB pension & am unsure what to do with this to maximise it's potential without risking it all-I am a little savvy about financial stuff but not up-to the standard of some people on these forums so any advice will be gratefully received.
Thanks in advance.

PeacefulWaters

If you are in receipt of a pension your annual contribution to a new scheme is capped at £10k pa.

How much will your DB pension scheme pay you now?

How much will it pay if you leave it until you're 65?

What happens if you draw it at any time between 58 and 64?

How much do you have in your DC pot? Could this be used to bridge the gap between retirement from employment and the DB pension kicking in at 65?

jamesd

Why use your employer's scheme? It's quite common for employer schemes to have restrictions on taking money out while an employee and you can avoid that by paying extra into your own personal pension instead of the work one. If the work one is salary sacrifice or up to a level the employer will match it can still be a better deal to use the employer one.

greenglide

If you are in receipt of a pension your annual contribution to a new scheme is capped at £10k pa.

Only if you use the "pensions freedoms".

Receipt of a DB pension, the 25% TFLS only or an annuity etc does not trigger the 10k cap.

jamesd

PeacefulWaters wrote: »

If you are in receipt of a pension your annual contribution to a new scheme is capped at £10k pa.

Not in general, only in specific cases that do not apply here.

The cap is called the Money Purchase Annual Allowance and starts out at £40,000. It restricts the contribution to money purchase pensions (so not defined benefit) to £10,000 a year if a person has taken any money beyond the 25% tax free lump sum from a money purchase pension.

Taking money beyond the 25% from defined benefit or state pensions does not trigger the Money Purchase Annual Allowance reduction to £10,000.

The limit is also not triggered if a person is in capped income drawdown and not withdrawing more than the GAD limit amount. Capped drawdown is what was available before flexible drawdown was introduced last year. Nor is it triggered if income is taken from a lifetime annuity, the sort normally purchased with money purchase pensions, if an annuity is purchased. And a small pots lump sum also doesn't trigger the MPAA reduction.

kidmugsy

Euryalus1978 wrote: »

I will also be taking a 25% lump sum as part of my DB pension

Is this compulsory? If not, I suggest you calculate whether it is good value. Divide the lump sum by the annual pension forgone to get the "commutation rate". If it's 12 or less, it's poor value. At about 20 it's OK, at 25 or more it's good.

Of course, your decision might not be dominated by value, but by health, say.

atush

Put the excess income into your new DC work pension, or a Sipp depending on if you get Salary sacrifice or not, and the ongoing costs of each option.

PensionTech

I am about to take my DB pension, at the age of 57, due to being outsourced, if I don't access it I have to wait until I'm 65 which I don't wish to do. I intend to carry on working with my new employer until 60 yrs of age so will be paid a monthly pension from my DB scheme plus my monthly salary which will put me well over the 40% tax threshold.

Ok, but why not at least wait until 60 then? Plus PeacefulWaters' point about DC savings being used to bridge the gap is a good one.

mgdavid

Euryalus1978 wrote: »

I am about to take my DB pension, at the age of 57, due to being outsourced, if I don't access it I have to wait until I'm 65 ...........

the bit in bold does not sound right to me, can you confirm who told you this?

Euryalus1978

Further info to my query posted earlier:


My DB will pay @ £8,500 at present & @ £11,800 at 65 yrs old.
If I draw it now I'm penalised 4% every year under 60 so @ 8%.
My DC pot contains @ £40,00 at present.
The 25% tax free is not compulsory but I've always considered it to be a no-brainer.
I have to be an active member of the scheme to access my DB & if I'm not I have to wait until 65 to access it, so as we're being outsourced shortly it seems I have to take it unless I want to wait until I'm 65-which I don't really.


Thanks everyone for the comments & please keep them coming.

greenglide

I have to wait until 65 to access it, so as we're being outsourced shortly it seems I have to take it unless I want to wait until I'm 65-which I don't really.

Is it really a case that you can take the pension unreduced at age 60 only if you are a contributing member otherwise you have to wait till 6 unless you take an actuarial reduction of 5 year or more?

Mine is like that, we can draw it unreduced after 60 if a contributing member and you take "normal retirement" rather than voluntary redundancy.

That does make sense for taking it now.