DB pension vs Enhanced tranfer value

ukdw

I am also thinking along the same lines as JerrySimon. Would their 17 years start at age 60 not 55 - so starting the pension 3.5 years early at 56.5 would mean they would be better off for just over 20 years - and at 77 they would have had plenty of time to get used to the lower amount so may not miss it.

My personal figures are similar - with a loss of 20% if I take my DB pension at 55 instead of 60 - so ignoring inflation and corresponding investment growth I make it that I would be better off for 25 years until I reach 80. I am currently waiting for a CETV before I decide what to do.

jerrysimon

At 66.5 years I will be another 6K+ better off with my SP anyway. As I said I still don't see the point of finding 61.5K burrowing or increasing my mortgage (now paid off) using it up, only to be 3K better off at 60. That 61.5K, if I had it saved up, would almost certainly be used to increase funds in the earlier years.

Its a gamble in terms of how long you live I agree and to me every extra year drawing your pension is a sure thing

I guess it is also the value of you pension i.e. if it was only 7K at 56 or 10K at 60 I can see why you may wait. If you know you can live off your pension comfortably, even though it being reduced by drawing it early, then for me its a no brainer.

Jerry

jamesperrett

One thing to remember when thinking about taking a CS pension early is that the pension will be uprated in line with CPI which looks like it is heading upwards. Anyone staying in a CS job will be limited to wage increases of 1% for the foreseeable future.

Camster

I take the point about current life expectancy, but there is no guarantee that you would reach this age.


My view would still be that it would be better to take the payment earlier and enjoy the additional income while you are healthy enough to benefit from it. The pension taken earlier would also be subject to annual increases.


Also, if I live to my late 80' or early 90's what need will I have for this additional income at that age apart from care costs?

kidmugsy

Camster wrote: »

if I live to my late 80' or early 90's what need will I have for this additional income at that age apart from care costs?

If you don't want to pay your care costs who would you like to pay for them instead?

jerrysimon

At the point where you need a care home your house would be sold anyway.

Also good point about annual increases, my father was an ex civil servant and a few years ago I remember getting 0% increases whilst he was get 3% or more.

As I said choice is a wonderful thing and for those of us with DB pensions, its wonderful that the amounts involved mean we have choices.

Regards

Jerry

jamesd

jerrysimon wrote: »

At 66.5 years I will be another 6K+ better off with my SP anyway. As I said I still don't see the point of finding 61.5K burrowing or increasing my mortgage (now paid off) using it up, only to be 3K better off at 60. That 61.5K, if I had it saved up, would almost certainly be used to increase funds in the earlier years.

So take the £3k earlier with borrowing instead and when the pension starts, repay using the extra pension income and lump sum though get by waiting before claiming it.

jerrysimon wrote: »

I guess it is also the value of you pension i.e. if it was only 7K at 56 or 10K at 60 I can see why you may wait. If you know you can live off your pension comfortably, even though it being reduced by drawing it early, then for me its a no brainer.

Yes, income matters. People who think they will have plenty of income are more inclined to waste it because it won't hurt so much.

It's really easy to apply for a few 0% for spending credit cards to delay for a while then repay with part of the higher lump sum and part of the higher income but some people don't want to do even something as easy as that.

jamesd

ukdw wrote: »

My personal figures are similar - with a loss of 20% if I take my DB pension at 55 instead of 60 - so ignoring inflation and corresponding investment growth I make it that I would be better off for 25 years until I reach 80. I am currently waiting for a CETV before I decide what to do.

Did that calculation include the bigger lump sum as well as the higher pension?

It's not about retiring later, it's about waiting to claim so you can retire at the same time with more income.

At the moment the CETV is likely to be very good. Two big advantages are 100% spousal pension plus potential inheritance but at the moment it would be normal to see substantially higher safe withdrawal rates for income than a DB pension would pay, in exchange for being willing to take a drop if you experience unusually bad times. Since you can pick the lowest drop you can constrain things so even if you saw a repeat of the worst outcomes in the last hundred years it wouldn't go lower than the pension level. Or you can go with higher starting level and more of a drop if you are unlucky if you prefer.

kidmugsy

jerrysimon wrote: »

At the point where you need a care home your house would be sold anyway.

Not if your wife's still in it.

jamesd

Camster wrote: »

My view would still be that it would be better to take the payment earlier and enjoy the additional income while you are healthy enough to benefit from it. The pension taken earlier would also be subject to annual increases.

Also, if I live to my late 80' or early 90's what need will I have for this additional income at that age apart from care costs?

You appear to have things the wrong way around. It's taking it later that gets you the higher income, without any need to wait before getting it, because you just use cheap borrowing or savings to pay yourself while not claiming. Then you replace the savings or repay the borrowing with part of the bigger lump sum and higher income and keep the rest for yourself.

In the late 80s and 90s you might still be paying off a mortgage if you wanted to shift as much income as possible to a younger age. Though even more keen versions would use equity release instead and not bother to repay, since the equity does you no good when you're dead.