take or defer pension query

Stubod

Hi,

Spouse due to retire 2 yrs early with an NHS pension. If pension deferred (2 yrs) will get approx £2.5k more. This will give a "break even" after about 17 yrs, but if pension is taken early will presumably pay less tax? (20% taxpayer). If the pension is taken early it will only just be over the current tax allowance. If we don't take the pension now we still have sufficient funds to "bridge the gap", and also the lump sum will be about £3,500 more if deferred. Although part of me likes the idea of maintaining some sort of income.

Just wondered if anybody could offer some thoughts.

Thanks

jamesd

Well, the income will be lower so the tax will be lower but there is the 2015 Conservative manifesto policy to increase the personal allowance to £12,500 by 2020, so the higher one might end up being inside it anyway. Moving in that direction 2017/18 is currently announced to be £11,500 vs the £11,000 this year.

jamesd

Not sure what you mean by deferred, though. Has she reached the normal retirement age for the scheme yet or would now be lower due to an actuarial reduction for taking it early?

Shimrod

Stubod wrote: »

Hi,

Spouse due to retire 2 yrs early with an NHS pension. If pension deferred (2 yrs) will get approx £2.5k more. This will give a "break even" after about 17 yrs, but if pension is taken early will presumably pay less tax? (20% taxpayer). If the pension is taken early it will only just be over the current tax allowance. If we don't take the pension now we still have sufficient funds to "bridge the gap", and also the lump sum will be about £3,500 more if deferred. Although part of me likes the idea of maintaining some sort of income.

Just wondered if anybody could offer some thoughts.

Thanks

Are you sure the numbers are correct? I would expect around a 10% actuarial deduction for taking the pension early http://www.nhsbsa.nhs.uk/Pensions/Documents/Pensions/Actuarially_reduced_early_retirement_factsheet_(V2)_01.2012.pdf which would imply a £2.5K reduction giving a circa £22K pension, significantly over the tax allowance. Does the 'deferred' projection assume continuing to work in the NHS for those two years and therefore increasing the pensionable years? By 'deferred' I am assuming you mean taking the pension at normal retirement age as opposed to taking it early.

jerrysimon

Stubod wrote: »

. If pension deferred (2 yrs) will get approx £2.5k more. This will give a "break even" after about 17 yrs,

Everyone seems to advise to leave it as long as possible to ensure the actuarial reduction is kept to a minimum if before retirement age, but depending on how much the pension is and if you can afford outgoings, I think your point about how long it takes to break even is a very good one, often overlooked.

I am in a simlar position and thinking of taking mine four years early at 56. By 60 I will have 42.3 years. I had always planned on leaving at 57/58 anyway. I guess it depends how long you have to live and/or of course how much state pension you will get in my case at 66.5 years old.

PS like you I also like the thought of some kind of income as soon as I retire. I guess its silly as does not matter where the income comes from but probably 38 years of getting a salary every month!

Regards

Jerry

Stubod

Hi all and thanks for the replies. I can confirm that what I mean is either taking the money "early", (ie 2yrs before normal retirement age, (actuarial reduction applied), or leaving it alone for 2 years and taking it at the "normal" retirement age.

As per JerryS. the thought of "zero" income after working for 35+ yrs is a bit scary...