Taking pension early & levelling

amstel2

Hello

Sorry if this goes on a bit but I find pensions very complicated.

I have a deferred pension with my former employer British Gas (National Grid) & am now old enough to start drawing it with a reduction.

If I leave it to the scheme’s NPA 60 it is currently worth £6,449.95pa. However, the options with a reduction for drawing it now would be £5,508.26pa or take a lump sum of £28,024 reducing the pension further to £4,203.60pa.

In addition there is a levelling option which would pay an additional £3,902.06pa until state pension age (67) which would then reduce by £6,203.60pa once my SP is drawn. Obviously none of these figures take a/c of annual rises.

However, my reckoning is that levelling pays a % of basic SP until I am 67 & then takes the full basic rate to pay for it. However, I recently received a SP forecast from DWP & I have 36 years of contracted out NI contributions which equates to a SP of £127pw. I am now contracted in so will need to make another 6 yrs. of contributions for the flat rate SP.

I am now 56 & currently employed in the Civil Service & managed to stay in the final salary scheme (Classic). The NPA in that is also 60 & it is currently worth £6,161pa with a lump sum of £18,483.

Intend to (if I can) carry on working full time until at least 60-62 when I might retire or take partial retirement & drop to 3 days pw if I can.

Should I take the BG pension now & the levelling option? Has anybody done this?

My personal situation is no dependants, mortgage free. However, I have approx. £12K of cr card debt mostly on interest free deals (I stooze), house need some improvement work doing to it, & could do with getting a newer car. I reckon with no debts more efficient heating system & better car etc I could reduce my monthly out goings by 40%. Obviously I could do all this if took the pension & maybe the levelling option now.

I consider myself to be in good health & lead a fairly healthy lifestyle & don’t smoke. However, the men in my family (all smokers with un-healthy lifestyles) are lucky to reach 70.

What’s also got me thinking “take it now & enjoy it”. Is a friend of mine retired from the NHS a year ago at 60 with a full pension & has now been diagnosed with a terminal illness so will never see any of his SP. He is urging me to take as much as I can now &enjoy it .

I am a basic rate tax payer & have been told by National Grid none of the options on offer would put me into the 40% tax bracket. Also all the figures quoted are gross. Finding it hard to decide.

Thanks

kidmugsy

I'd start out backwards. How much will you need to live comfortably after the onset of your State Retirement Pension, assuming that you really won't want to work after that? If you'll need £20k p.a. then you'll need the whole BG pension, plus the CS pension, plus the SRP.

If you reckon you could get by on less then you can entertain the other options.

xylophone

Let's suppose you didn't take the levelling option but did opt for maximum lump sum (to enable you to do the home improvements and buy the car) plus the monthly pension.

Would you then be in a position to use the monthly pension as a "replacement" for the same amount of salary ( to cover all your usual outgoings) and then to pay some salary into a private pension for the sake of obtaining the tax relief?

You would then have another income stream/lump sum available to you as and when?

amstel2

Thanks for the responses.

What i also forgot to mention is this:

By my reckoning if i took the lump sum then the BG pension would work out at approx. £280pm after tax. If i levelled as well this would be approx. £540pm after tax. Combined with my salary & taking away my current living expenses/bills/debt repayments etc.I calculate I would have a surplus of approx. £716pm.

My idea was to bank half this surplus in a savings a/c every month until SP age & use the other half & the lump sum to replace the car, pay off the cards, & fund a home improvement loan. Once this is all done I would have a bigger monthly surplus as my outgoings would reduce. I am even prepared to carry on working a few years longer if necessary.

Also at SP age i would still have the difference between the basic & flat rate pension.

Thanks

Rodders53

Levelling:
1) The sum paid will likely NOT increase with RPI/CPI (if like my firm's levelling option). Unlike the main pension in payment. So it won't seem worth as much as time goes on.

2) How long do you pay it back for? (My Co. is 10 years, to 75 in my case, although it used to be 'for life'! :eek: ). {In fact I understand they have withdrawn levelling as an option, so few ever took it.}

3) I don't see how they can claw back £6.2k pa for levelling from a pension in payment of £4.2k pa (even with inflation @3% it would only be around £5.8k pa 11 years later?).

amstel2

Rodders53 wrote: »

Levelling:
1) The sum paid will likely NOT increase with RPI/CPI (if like my firm's levelling option). Unlike the main pension in payment. So it won't seem worth as much as time goes on.

2) How long do you pay it back for? (My Co. is 10 years, to 75 in my case, although it used to be 'for life'! :eek: ). {In fact I understand they have withdrawn levelling as an option, so few ever took it.}

3) I don't see how they can claw back £6.2k pa for levelling from a pension in payment of £4.2k pa (even with inflation @3% it would only be around £5.8k pa 11 years later?).

1. Examples given in the Levelling Leaflet I received from National Grid do give inflation rises & the National Grid rises are RPI. Though I will confirm first.

2. The reduction when the SP starts is for life (although if I was to die before I get the SP they lose out).

3. If I take levelling the gross figures are reduced pension of £4,203.60pa + levelling uplift £3,902.06pa = £8,105.66pa (in the first year annual RPI rises after). My current SP forecast per DWP is £127pw (£6,604.00pa). However, I need to make another 6 years of full NI contributions to get flat rate SP of £155pw (£8,060.00pa). The reduction figure covers the basic SP amount of £119pw. Therefore, on reaching SP age I would keep the difference between the basic & flat rate pension.

However, the leaflet does warn if the government increased my SP age they would continue to pay the levelling amount but the reduction would be more.

Hope this makes sense as my head is spinning.

Thanks

xylophone

https://www.nationalgridpensions.com/540/spa-on-or-after-6-april-2016

jamesd

amstel2 wrote: »

I consider myself to be in good health & lead a fairly healthy lifestyle & don’t smoke. However, the men in my family (all smokers with un-healthy lifestyles) are lucky to reach 70.

Since you're old enough you might consider a CT scan of the type offered by Lifescan. That will do things like tell you how congested your coronary arteries are - coronary calcium score - and whether there's any unusual enlargement.

With a father who died from a heart attack in his early 40s and mother from a pulmonary embolism in her 70s I found it useful to know that my own heart is entirely normal for my age and you might find that knowledge reassuring, or find that there's something you need to be doing.

kidmugsy

My own coronary arteries were described by a Registrar using an arcane technical term, namely "clean as a whistle". It's the reward for eating a balanced, mixed diet and ignoring the government's absurd anti-fat pro-carbohydrate propaganda.

Or perhaps just the luck of the draw in the genetic lottery.

amstel2

jamesd wrote: »

Since you're old enough you might consider a CT scan of the type offered by Lifescan. That will do things like tell you how congested your coronary arteries are - coronary calcium score - and whether there's any unusual enlargement.

With a father who died from a heart attack in his early 40s and mother from a pulmonary embolism in her 70s I found it useful to know that my own heart is entirely normal for my age and you might find that knowledge reassuring, or find that there's something you need to be doing.

Actually i was thinking of having a scan even maybe just a heart one.

amstel2

Thanks for all the replies everyone. I think it might be best to leave the pension where it is for now until the dust setteles after the Brexit.