Retire at 55?

robin61

ajbell wrote: »

Yes I know but this is a fully funded ftse 100 company scheme. Although closed to new starters for some years now.

Maybe it's my cynical nature but I doubt they would be offering you this if they hadn't already worked out it would benefit them ?

jamesd

If it's the CETV the way it can benefit them is by eliminating the risk of higher life expectancy. But depending on the CETV it may be possible to use state pension deferral and drawdown to beat the income and deal with that risk yourself.

So far as the age 55 aspect goes, with £50k in savings my inclination is to use that to help to increase pension contributions. That way there's a boost to the value due to the pension tax relief and the money is available at 55. And since the defined benefit pensions won't have started yet, the money will probably all be tax free when taken out over several years. Tax relief on the way in and no tax on the way out is a nice combination.

If more money than you can put into DC between now and 55 is needed to bridge the time from age 55 to age 60's normal retirement age then taking the transfer from the 120k/170k one after 55 would be the way I'd go, preserving the value of the bigger DB pot. Assuming that the benefits of the two per pound of CETV are close. And actually the CETV per Pound of pension value looks higher for the 120k/170k one, suggesting doing that one is the way to go.

Both actually seem to have good CETVs. For the 120k/170k one it looks like the income it will pay is just 1.8% of the pot per year. The other one is 2.3%. For comparison, state pension deferral pays 5.8% per year of deferral and is a nice way to build up guaranteed for life inflation-linked income. And if using pure drawdown with the Guyton and Klinger drawdown rules the initial income level is 5.44% using US investments, 0.3% less for UK, for a 30 year period at 50:50 equity/bonds mixture and 90% success rate. Need to cut another 0.2% or so off that for age 55 due to the extra years it has to pay out for. That's still way above the income level for the CETV that the pensions provide if you stay DB.

So given those CETVs what I'd actually do is transfer, use the Guyton and Klinger rules and defer the state pension to restore the guaranteed income once reaching state pension age. That then increases the safe withdrawal rate further. Using those sorts of drawdown rule you'd actually end up with around twice the income that the pensions would provide, subject to the caveat that you'd have to reduce it if you experienced a long run of bad market results.

But if you're not comfortable with investing, just doing a transfer of the smaller one looks like a nice way to go. That would let you start on your age 60+ income level at 55 or even immediately if you wanted to. 10k + say 8k state pension at age 53 using savings initially should work fine. Provided you're comfortable with 18k income for life. Age 52 now so you'd need 8 x 18k to cover now to age 60 plus 7 x 8k to cover the missed state pension between 60 and 67. Ignoring investment growth and inflation that's a need of 200k. And you potentially have 50k now and 120k for the smaller one's CETV now, but better the age 55 CETV (but it could drop). Given the 15 years involved the investment growth should cover the difference easily enough. But still, waiting to 55 instead of retiring now would have a good deal higher safety margin and let you boost your rest of life income above 18k.

atush

I agree with Robin on this one.

What amount of savings and investments do you have outside of pension?

I would max out your sipp/dc pension over the next few years and use that to live on for a few years or up to DB pension date. If you want to transfer one to a DC pension, consider the smaller one.

PensionTech

Offering transfer values alongside retirement options is the new craze post-freedoms. It's being promoted by a lot of consultants and schemes are taking it up in droves. It is a de-risking mechanism - although the CETV is calculated as the best estimate of the benefits payable to the member, crystallising them all straight away via a transfer out eliminates the risk that life expectancy or inflation will be greater in future than our current predictions suggest. It doesn't necessarily make things cheaper for the scheme - what it does is lock in the cost of benefits at today's prices, for better or for worse, hence eliminating risk. A lot of schemes are doing whatever they can to reduce risk, even though the cost of de-risking right now is probably higher than it's ever been. This is prompting some to suggest that maybe de-risking is going too far, costs too much, and comes at the expense of growth and upside risk. But of course, consultants make a lot of money selling de-risking advice and options.

I am not surprised or suspicious that the scheme is offering transfer values at retirement. This is becoming more normal, and the reasons for doing it are more or less obvious and transparent. What I am surprised about is that they're projecting them into the future - this simply doesn't work when it comes to CETVs, and the OP should be very aware that there is a good chance that the CETV at age 55 will be very substantially different to that quoted.

Thrugelmir

ajbell wrote: »

Yes I know but this is a fully funded ftse 100 company scheme.

The Company will be looking forward over the next few years. To ascertain the level of contribution required to maintain the status quo. A surplus can soon disappear.