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Can anyone help

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Comments

  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    Assuming you took it now, you would pay HRT on it, and thus would get 4 x 6k = 24k plus the growth on it.

    So you need to see how much your pension will be reduced and how many years it would take you to equal 24k.

    Will taking it early affect your lump sum/tax free cash?
    Trying to keep it simple...;)
  • Hi Ed,
    Pleased to say that when ever I take my pension I get a tax free lump sum of 3 times my yearly pension.
    If at all possible I would be looking to get a deal with my new employer that part of my £40K would be taken in benifits or even in pension contributions although 4 years does seem a short time to start a money purchase pension. The other way would be to freeze my pension and draw it when I decide to finally retire, but my thinking is I would gain more in drawing it now as I would have 4 years payments to invest somewere else which I think you earn me more than the pension would grow frozen.

    I suppose the problem is 2 fold.
    1. I dont want to move jobs and loose out on my benefits without I get the compensation biult into my new pay deal.
    2. I dont want to see it all go back out in TAX

    I suppose some people would say I am trying to have my cake and eat it.
  • dunstonh
    dunstonh Posts: 120,179 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Pleased to say that when ever I take my pension I get a tax free lump sum of 3 times my yearly pension.

    Are you sure? Rules changed in April 2006 and the amount of tax free cash you could take was one of them. You could apply for protection prior to that date if you exceeded the TFC allowance but if you didnt do it before the cut off then you lost out.

    Certain occupational schemes do have a transitional period allowed but money purchase schemes do not.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Hi Dunstona,

    At prescent I work for the NHS and I have a final salery pension not a money purchase pension. Also because of long service I am classed as special class and can take my pension anytime after 55 without any penalties. The major thing I am trying to work out is what would be my forcasted lossess if I took retirement now. I am 56 now. I have been offered a kob in the private sector which I am thinking about taking. They are prepared to make up the short fall I will incure by retiring early from the NHS with an increased salery or benefits in some other form, ie bonus payments or other non cash benefits. What I am trying to work out but am not sure how to is what the long term short falls would be.
    I.E. if I loose a £1000 a year on my pension and £3000 on my lump sum how do I forcast how much that will amount to over the life of my pension.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    sarah_h wrote: »
    ..if I loose a £1000 a year on my pension and £3000 on my lump sum how do I forcast how much that will amount to over the life of my pension.


    You can't unless you know the date that you will die. ;)
    Trying to keep it simple...;)
  • If you have no reduction by taking the pension early you actually make money.
    You will have 4 years of pension. Your wage increase will be around RPI (or less if Gordon get his way), you pension increase in payment may be RPI or there abouts so these cancel each other.
    Yes you will lose 4 years increment (4/60 ie 7-8%).
    So if you have a £20k pension now that would be £80k (minus 40% tax unless you lose most of it within the new wage as tax free) plus a lump some of £60k which would be worth more than the lump sum you would have got in 4 years time.
  • Hi Chrissy,

    Have not looked at what I would draw in pension over the 4 years. our pension is a 1/80 so I would have 4/80 loss but in that time would draw about £35K in pension, plus my lump sum. What I would draw in 4 years would make up my pension short fall for 10 years but then after that surely I would be out of pocket by the short fall of about £2500 plus RPI for how ever many years I live over 10 years.

    All you wise people out there correct me if I am working this out wrong.
  • Hi Sarah,

    Just for more detail - I made a few assumptions for my figures:

    I assumed your pay and the pension will both track RPI over the next 4 years.
    This means that although it may seem you start off with a lower pension you end up with the same after 4 years!
    What you would have extra is that you would have 4/80th (5%) more build up.
    I think the figures go like this (ignored the lump sum for now) - rpi set as 3% (apologies for the formatting):

    Age..Year..Stay...New job..........Savings...Interest
    56...2007..10000..
    57...2008..10300...................6000
    58...2009..10609...................12360
    59...2010..10927............xtra...19096
    60...2011..11255..11817.....562....26225
    61...2012..11592..12172.....579..............786.76
    62...2013..11940..12537.....597..............786.76
    63...2014..12298..12913.....614
    64...2015..12667..13301.....633

    When you get to 60 if you stayed and build up the extra going forward you would always have 5% extra.
    So pension would be at 11817 rather tha 11255. So rpi increases get bigger over time.
    BUT remember the £40k+ (but tax at 40% will make it £26k as above) that you got over the 4 years - this will give you interest per year.
    So in 2011 you got an extra £562 for your staying pension but you got £786 from leaving savings (ISA may get more) - you are up.
    In 2012 you get £580 extra but still get £786 from you savings.
    So if you roll this forward until your stay pension extra catches up to the interest on the money got this is quite a few years - til 71.
    Then you get to draw off from the £26k! Probably into your 90's before you are losing anything.

    But take your new employer for anything you can get!

    The main problem is that you will be taxed at 40% on all your income which includes the pension - so is it a tax issue you seem to have.
  • Hi there Chrissy,

    Thanks for the forcast I follow what you mean. I have thought all along that the tax implications of drawing the pension and increasing my salery would have. I think I am clearer in my mind now as to were I stand from a pension point of view. It was always my plan to reinvest any pension I draw from day one because as we all know it is easy to get use to having the extra money and I dont want us to become dependent on it. We have a comfortable life style now not rich but comfortable and with only a few more years to work and my husband already retired with only a small pension income it is all about building up as big a pension pot as possible. I think now I need to look at how I could build things in to the new package that are tax efficant. Once again open to idears from any of you more imformed than me posters.

    Can I also say thanks to all the folks who have taken the time to try and help out a new member.
  • Hi Folks,

    Had a thought(maybe not a good one) Is it of any advantage to freeze my pension thereby allowing me to earn more before I have to pay 40% tax or am I forfitting income and the interest that income could generate to save less in tax than I could earn.

    Anyone out there any comments on that one even if it is only to tell me to stop thinking (silly thoughts)
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