Taking a Final Salary Pension at 55

jamesd

Thrugelmir wrote: »

Scheme deficits are currently estimated at £380 billion.

To put that into context here are numbers for the combined deficit of all UK defined benefit pensions:

June 2015: £209.6 billion
June 2016: £383.6 billion
July 2016: £935 billion

Schemes didn't just become hugely less safe. The issue is things like inflation and growth assumptions that have become more pessimistic based on current market rates for things.

The PPF rules about taking losses relate to whether you're retiring before or after the normal scheme retirement age. Wonton won't be able to dodge any PPF reduction by taking the pension early so the usual guidance to wait until as close to NRA as practical in most cases would apply.

However, the same calculations that produce inflated deficits can also produce inflate pension transfer values, so it is worth seeing what the transfer value is today. Wonton might find that something like transferring and then deferring the state pension can get more guaranteed income for the money, or that drawdown with a suitably high success rate threshold can.

A transfer out of a potentially failing scheme can be particularly appropriate to those who have pension entitlements well above the PPF's limit though there are proposals that would reduce this effect that have not yet become law.

wonton

Mr.Generous wrote: »

I have looked at mine like this, at 60 pension is (say) 16k per year, at 55 its £12k. ok a lot more, but taken at 55 12k x 5 years = 60k. So at £4k more per year it would take 15 years to break even. That would put me at 70. If I don't live to that I've lost out.

I think I'm going towards Mr Generous. Although I don't need the pension at the moment I've worked out that if I take the reduced pension now it will take around 20 years before the full pension will overtake the reduced one in total money paid.

Although at the moment I'll have to pay tax (which i hate doing). I'm a sole director LTD company. Maybe I can take less salary and more in dividends? I'll have to work that out.

bigadaj

dunstonh wrote: »

Although that figure is subjective and suffers big swings. The assumptions that lead to those sort of figures have gone from being overstated to understated. Still some issues for sure though.

The PPF could not take them all but currently the PPF is in surplus.

It is really hard at the moment as the transfer values being offered by many schemes really tests the resolve and the conventional thinking.

Just seems like another unintentional element of intergenereational unfairness.

Db schemes have closed to pretty much everyone on the private sector, and been diluted in the public sector. Now there's also a massive sake offer on taking the sums straight away and being able to drawdown at a rate that will leave a huge pot available after death.

Very difficult to know what to do, many schemes can't support the historic promises, if they get rid of liability now they are paying a huge premium comoared to anything similar for decades past. Ultimately it's the younger generations that end up paying the bill, emigration for anyone under 30 looks like a wise move.

Even where companies can afford payments it still tempting to undertake a bit if financial engineering a Philip green and leave the tax payer and or other schemes with the mess.

atush

wonton wrote: »

I think I'm going towards Mr Generous. Although I don't need the pension at the moment I've worked out that if I take the reduced pension now it will take around 20 years before the full pension will overtake the reduced one in total money paid.

Although at the moment I'll have to pay tax (which i hate doing). I'm a sole director LTD company. Maybe I can take less salary and more in dividends? I'll have to work that out.

Do you have a pension in your company now? Thats the way to go, the company pays the pension contribs for you, saves employers Nics and corporation tax. Put all your spare income there.

Otherwise, it is silly to take a pension early, reduced, and taxed when you dont need to?

And I dont think it will take you 20 years, did you work out the indexing?

Linton

Mr.Generous wrote: »

I have looked at mine like this, at 60 pension is (say) 16k per year, at 55 its £12k. ok a lot more, but taken at 55 12k x 5 years = 60k. So at £4k more per year it would take 15 years to break even. That would put me at 70. If I don't live to that I've lost out. At 55 I plan to spend some of the money on booze, loose women and holidays, the rest I'll waste.

Assuming one is of average health the chances of reaching 55 but dying before 70 are estimated at about 1/8 for a male. It makes more sense planning on the 7/8 probability than the 1/8.