58 YO in Closed final salary scheme- should I take it?

desrese

I am in a final salary pension which I joined in 1993 to 2007 when it closed.
I am currently contributing to an enhanced defined contribution scheme and intend to retire at 63, which is when my employer drops their pension contribution back down to 10%. It started at 20% and decreases over 15 years to 10%
As far as I am aware the value of the DB fund will remain the same except for yearly pay increase and inflation, unless I get a promotion, which is extremely unlikely. Just reading the statement it increases by about £1000 between now and NRD.
I’m not sure what information to provide here, or even if it is a simple yes or no, but should I take the final salary now?
Also, I know I’m asking a lot here, but I really don’t have a clue about pensions! Assuming I take the DP pension, can I some of it as EDC into my DC scheme?
I currently pay income tax at 40%
I hope someone can throw a little light on this, I should have made my forum name confused!!

bigadaj

If you took it now there would presumably be a reduction, this is typically 5% for every year before the NRD.

If you pay tax at 40% then you can pay more into a pension and get the tax relief, this doesn't have to be with your employer but can be into a separate personal pension or sipp.

tibbles209

Generally a defined benefit scheme will have a normal pension age associated with it, and this is what your forecasts are based on. For example if your scheme's normal pension age was 60 then the forecasts you are getting refer to what you would receive if you were to start claiming the pension at age 60.
Most of the time you can choose to take the pension earlier than the normal pension age, although with actuarial reduction. As bigadaj states this is typically a reduction in your annual pension of approx 5% per year earlier than the normal pension age you start taking it. In some cases there is also the option to go in the opposite direction; to delay claiming your pension in exchange for actuarial increase when you do.

So the answer to whether you should take it now or not really depends on;
What the normal retirement age of your defined benefit plan is (what age are you now?) and whether you need the money currently, or are able to wait until your normal pension age (assuming you have not reached it yet).

mgdavid

From your dates and details given I wonder if you're with Siemens? (if not it's uncannily similar). I was in the same situation and discovered that I could take the DB pension unreduced from age 60. This I did, and promptly put it all back into pension contributions thus avoiding the 40% tax on it. Effectively it was free money as waiting until I retired would have gained me nothing.

desrese

Thanks for the replies bigadaj and tibbles209 for your replies.

I’m not a frequent forum player so not sure of the etiquette yet.

Mgdavid is indeed correct about my employer, which is why I think I should take the DB now.
As I said previously the projected pension only goes up by approximately £1000 between age 60 and 66 NRD. This according to the standard assumptions, this is based on inflation 2.5% pensionable salary increase 2.5% and that I don’t pay any more money in.

Mgdavid Can I ask how you put it all back into pension contributions, as this is something I am very keen to do.

Once again thanks for the help

irm

desrese wrote: »

As far as I am aware the value of the DB fund will remain the same except for yearly pay increase and inflation, unless I get a promotion, which is extremely unlikely.

I would have expected the value of the DB scheme to be calculated based on your salary at the time of the closure of the scheme (ignoring inflation, etc), rather than your retirement date, so any promotions after it closed are irrelevant to its value.

mgdavid

desrese wrote: »

........

Mgdavid Can I ask how you put it all back into pension contributions, as this is something I am very keen to do.

Once again thanks for the help

I maxed out my DC pension contribution to 10% and EDCs also to 10%, the extras went into a SIPP.

If it were me I wouldn't suffer any actuarial reduction by taking it now but wait until 60 - check the Scheme Rules that the clause is still in there !
PM me if you'd like any detail that need not be public.