What to do with pension ?

edinburgher

The 25% tax free is not compulsory but I've always considered it to be a no-brainer.

Why? Consider Kidmugsy's comment - have you researched whether it's a good deal for you based on numbers, as opposed to having a general hunch about fancying a lump sum?

atush

If you draw the pot now, it will be reduced 3 years or 12% as you are 57, not 58

kidmugsy

Euryalus1978 wrote: »

The 25% tax free is not compulsory but I've always considered it to be a no-brainer.

It's a no-brainer only in the sense that people with no brains tend to take it without thinking. Look at my post above and do the arithmetic. You're 57; unless you've objective knowledge to the contrary you might well live another thirty years (or more, of course). An inflation-linked income for the rest of that life is seriously valuable. It also needs no management when you are old and muddled, and is far harder to steal from you than a lump sum.

jamesd

Euryalus1978 wrote: »

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%.

OK, so whether it's 8% or 12% mentioned by atush you have the usual type of scheme where it's a bad move to take it sooner than the normal retirement age which seems to be 60 for this scheme. So first priority is to avoid taking it before you reach 60. Using money from the DC pension or borrowing on cards with cheap deals or a mortgage will all be cheaper for you than taking the money now. That's broadly because the cost of the short term borrowing is lower than the cost in long term lost income. Assuming it's possible to take it at 60. 65 might be too far away.

Euryalus1978 wrote: »

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.

For a defined contribution pension it's pretty much a no-brainer to take the tax free lump sum. If not needed just paying the money into a personal pension can get the tax relief gain that would be lost if it's not taken as a tax free lump sum.

For a defined benefit pension the opposite rules is true and it's a no-brainer to not take the tax free lump sum because the commutation rate of lump sum for income foregone is usually poor. Public sector schemes tend to be 12:1, private sector around 16:1 and the actually fair pension protection Fund uses about 28:1 and helps to illustrate how bad typical commutation rates are.

Euryalus1978 wrote: »

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.

It may well still be best to wait if you can afford it with borrowing but it's good to double and triple check that you won't as part of this deal be able to take it at 60. If unions are involved the union reps might be able to clarify with the firm or seek a change to allow it.

It's so costly to take it now that you really need to be absolutely certain before you do it.

PensionTech

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.

This seems to be saying that the Normal Pension Age (though not necessarily the Normal Retirement Age) is 60 for active members, 65 for deferred members. Preservation laws should generally ensure that the value of a deferred benefit is equal to that of an active benefit so I would be surprised if this were the case. On top of that, it's very unusual for a scheme to not allow deferred members to take early retirement, since early retirement accelerates cashflow out of the scheme which is generally desirable as a de-risking mechanism.