Help with DB pension and when to take it

enthusiasticsaver

I am retiring early (age 58) at the end of this year and am trying to work out mathematics of when to take my LGPS. I work part time so only earn £11000 after tax and NI, pension contributions. My husband is already retired and his pension covers almost 90% of our outgoings (£22k per annum after tax). We need £25k so would need to take £3k from savings each year until I claim my pension. We have a large cash buffer (5 years expenses) and we both reach SPA in 2025 and 2026 respectively. We have investments in the region of £200k and an investment property being sold at the moment which will be distributed between our daughters and investments for us.

The quotes I have are £4700 pension if I take it early when I retire 31.12.17 with a £10k lump sum. If I wait until I am 60 in 2020 it will be £5575 with approx £10k lump sum. If I wait until 2026 (NRA) then it will be £7880 with a £12,300k lump sum. I have a GMP with a former employer which pays out when I am 60 and will give me around £4k per annum.

We can survive on my husbands pension and savings until 2026 but is there a justification for taking it immediately given I will be taking a £3180 hit per annum? My feeling is I should wait but does the extra 8 years of having the pension make taking it worthwhile?

kidmugsy

Your GMP plus your State Retirement pension (you have checked the amount of that I hope) will presumably make you a payer of income tax at SRA: they'll use up all your Personal Allowance. So drawing your LGPS pension early will give you a tax advantage.

By my calculations, assuming that you pay no income tax until 2026, taking the pension soonest will break even when you are 83 or 84. Your life expectancy (unless you have objective reason to know better) is older than that so there's a case for deferring drawing it. On the other hand, if I were to "discount" future pension payments at a few % p.a. I might conclude that there was little case for deferring.

But what if your husband dies long before you do? Presumably you'd get only half of his pension and you might then feel short of income because it's wise to assume that on your own you'd need 75% of what you spend as a couple. I suppose that even then £12.5k + £4k + (I assume) £8k + £4.7k, less tax, would be comfortably enough. If you think it might be tight than there's a case for deferring.

enthusiasticsaver

The tax side of things is something I hadn't considered so thanks for that. Once I have my occupational pension, my GMP and my state pension that will tip me into being a tax payer unless the tax allowance rises considerably. Having attended a retirement seminar today the figures above are incorrect for taking my pension at 60 and 66 as they assume I will be working until that point which I won't be. I need to get quotes for deferred pension which will be lower. I am now leaning towards taking it at the end of this year. If my husband dies I will get 50% which will be £11500 although if he dies within 10 years of retiring I get a further lump sum.

Triumph13

What's with all this talk about 'needing' £25k pa and 'surviving' on your husband's pension? Time to wake up and smell the daisies - or roses in this case.
You say you have 5 years worth of expenses in cash, which I presume is £125k plus £200k of investments, plus money coming from the sale of an investment property.
Well start at your position when both drawing state pension and work backwards. DH will have his pension of £23k plus a state pension of £8.3k. You will have your SP of £8.3k, £4k of your GMP pension and £4.7k of LGPS if taken at 58. If we assume current tax rates and thresholds that is over £43k pa after tax income each year.
To plug the gap until all those income streams come on line you need something like:
£53k for DH's SP (8 years of taxed SP)
£75k for your SP (9 years assumed untaxed as I'm lazy)
£8k for your GMP (2 years at £4k)
£12k for voluntary NI contributions to get you both to full SP


That adds up to well under half of your cash and investments. You can therefore start living to an income level of £43k not £25k with no real risk at all. If you take an income from what's left then you should be able to get that spending level up to £50k pa if you want to.


You are officially rich. Have fun.

enthusiasticsaver

Thanks Triumph and yes I feel we are fortunate. We have saved hard in my husbands pension and to build up stocks and shares portfolio, I wish though we had overpaid into my pension too although I do have sipps. We don't deprive ourselves and we like to do nice holidays (which probably will come from savings) and we treat our family to holidays. We both like the reassurance a cash buffer gives us mainly I think because we don't know if either of us will need additional care as we get older.

Why would we need £12k of voluntary NI contributions? We both have made full contributions. My forecast says £155 per week from 2026 and my husbands forecast is £165 per week from 2024.

xylophone

My forecast says £155 per week from 2026 and my husbands forecast is £165 per week from 2024.

Does this assume that you will continue to contribute?

What was your "starting amount" at 6.4.16?

What is your/your husband's COPE?

Triumph13

+1 to xylophone's questions.
You both have DB schemes. That strongly suggests that your 'new basis' calculation at April 2016 would be heavily reduced because of contracting out and is probably lower than your old basis calculation. If so then your accrued SP at April 2016 would only be the old state pension of £119 per week, but you would be able to increase this by £4.45 for each year's NI stamp after that date until you reached the new limit.

enthusiasticsaver

Thanks for that. I have checked our statements which were done on 4th April 2016 online and they do say the forecast assumes further NI contributions which obviously won't be the case as my husband no longer pays NI and I won't from January 2018. I had a retirement seminar yesterday and the financial advisor said it was now more expensive to buy added SP years and thought it was not worth it. How do I find out what each extra year costs?

enthusiasticsaver

Mine says the amount based on my current record back in April 16 is £131.97 each week. My husbands says his amount based on his current record is £162.16 each week so it looks like we have made or are very close to full contributions already? Am I reading that right?

enthusiasticsaver

xylophone wrote: »

Does this assume that you will continue to contribute?

What was your "starting amount" at 6.4.16?

What is your/your husband's COPE?

You are Correct in that it does assume we would contribute but the current figures for my husband were not far off. Mine were £20 per week short though so I will look into that after I retire. I don't know what COPE is or how to find this out.

enthusiasticsaver

I have just done a new forecast after getting on to the government gateway. It says I have 42 years contributions with no gaps, I think my child benefit may have something to do with that as I have had 3 years break when our children were small. My estimate based on my contributions so far is £141.15 per week and if I contribute a further 5 years before Feb 2025 I will get the full £159.55 per week. This seems like it could be worth it so I will look into that. My cope estimate is £31.22 per week but still not sure what that means. Is it to do with my contracted out occupational pension and this is how much I have lost (state pension wise) due to being contracted out?