Final salary pension deferral

LarjWej

hi BobQ,

i probably didn't phrase my initial question very well.

my NRA is 60 and i intend to retire early at 55

this pension is index linked so whether i retire at 55 or 60 my payments will increase in line with inflation from the point i decide to draw it

if i take the pension at 59 instead of 60 its 5% less, if i take the pension at 58 it's 10% less and so on

L

bigadaj

LarjWej wrote: »

hi BobQ,

i probably didn't phrase my initial question very well.

my NRA is 60 and i intend to retire early at 55

this pension is index linked so whether i retire at 55 or 60 my payments will increase in line with inflation from the point i decide to draw it

if i take the pension at 59 instead of 60 its 5% less, if i take the pension at 58 it's 10% less and so on

L

Yes, that makes sense, your original statement is misleading as it should all be based on your normal retirement age, so rather than an increase to your pension you are actually avoiding a reduction if you don't take it early.

ukdw

Doing some rough calculations, If you ignore inflation and investment growth, then the breakeven point for taking the pension at 55 vs 60 is 20 years time (age 75). i.e. 20 x £75 = 15 x £100.
If you reach age 88 then the difference in total withdrawn cash between the two options would be £2475 (55) vs £2800 (60) or 88:100

If investment growth of the savings not needing to be spent between 55 and 60 is factored in then this could push the breakeven point later by a year or two.

marlot

ukdw wrote: »

Doing some rough calculations, If you ignore inflation and investment growth, then the breakeven point for taking the pension at 55 vs 60 is 20 years time (age 75). i.e. 20 x £75 = 15 x £100.

This is correct- but for the gross amount.

I'm also intending to stop work at 55, and will have little other income, so taking a couple of my DB pensions early means that I can take them without incurring tax. When I compare the net position, I find the breakeven point moves out to nearly 90 years old.

ukdw

marlot wrote: »

This is correct- but for the gross amount.

I'm also intending to stop work at 55, and will have little other income, so taking a couple of my DB pensions early means that I can take them without incurring tax. When I compare the net position, I find the breakeven point moves out to nearly 90 years old.

Good point about tax, would be interested to see some calculations that take it out that far.
The best breakeven point I can think of when taking 20% tax in to account is about 79.
I.e. If all income before 60 is tax free, and all income above 60 is taxed at 20% - 5x75+19x75x.8 = £1515, and 19x100x.8 = £1520
I suppose 40% tax, inflation and growth on savings not spent could push it closer to 90.

marlot

ukdw wrote: »

Good point about tax, would be interested to see some calculations that take it out that far.
The best breakeven point I can think of when taking 20% tax in to account is about 79.
I.e. If all income before 60 is tax free, and all income above 60 is taxed at 20% - 5x75+19x75x.8 = £1515, and 19x100x.8 = £1520
I suppose 40% tax, inflation and growth on savings not spent could push it closer to 90.

I'm planning on taking one of my pensions 12 years early (55 instead of 67). In my case, I'm also constrained by the lifetime allowance, which would mean even more tax if I left it to its natural course.