What happens if I retire but don't take my pension?

pimento

I'm 58 and am in a final salary pension.

I don't want to approach my HR department yet because I don't want to scupper the small possibility of redundancy so I wondered if I might pick the collective brains here.

If I decide to retire on my 59th birthday but not actually start taking my pension until my 60th birthday, what happens to the pension/lump sum amount?

For example. If I were to retire on my 59th birthday, I would be entitled (according to my latest forecast) to a lump sum of £105371 and an annual pension before tax of £15806.
If I retire on my 60th birthday, I would get a lump sum of £112450 and a pension of £16868

I will get 13 weeks salary as a severance payment and my husband and I have enough savings for me to frugally live for 12 months before drawing the pension but I assume that the pension due if I wait til I'm 60 won't be as big as the forecast but how would it be worked out if I defer?

I have an absolutely horrible commute of 2 hours each way and a reduced life expectancy so am keen to decamp ASAP.

I have a pension handbook I can refer to but it's a bit light on detail.

Many thanks for any advice.

TcpnT

What is the normal retirement age for this scheme?

pimento

My assumed retirement age is 65 but you can retire any time after 55.

Marcon

pimento wrote: »

My assumed retirement age is 65 but you can retire any time after 55.

You don't have 'assumed' retirement ages in defined benefit schemes, and 55 is the normal 'legal' minimum age at which you can draw your pension, so not quite sure that answers the question!

You need to check (and your scheme booklet should say it somewhere) whether there is a reduction for taking your pension early i.e. at age 59 rather than the scheme's Normal Retirement Date (might be called Normal Pension Age or something similar). If there is, the reduction is sometimes smaller where someone leaves active membership of the scheme and starts to draw their pension immediately. Resigning and then putting off taking your pension for a year could actually be more expensive than taking it immediately, if that's the case in your scheme.

Redundancy can be a different kettle of fish. Part of the deal might be some sort of pension augmentation. Again, it's something only you can check.

Either way, given you have a ghastly commute and a reduced life expectancy, calling time on your workplace sounds a pretty good idea (and even better if you can do so with a redundancy package).

GunJack

Is the pension subject to actuarial reduction if you take it before normal retirement date (which you stated as 65)?

If so, the forecast you have could be lowered by around 25%, 5%-ish per year for retiring (and claiming the pension) early..

Or are the figures you quote above AFTER any actuarial reduction?

pimento

OK, here's what the booklet says:

Can I stop working before age 60 and receive a pension?

Yes, you may retire at any time after the age of 55 provided you have been a member of the scheme for at least 2 years. If you are aged 55-60 you additionally need the agreement of your employer. You will receive an immediate pension, calculated as for normal retrement, but if you are aged under 60 it will be reduced because it is being paid earlier than usual and over a longer period of time. The reduction applicable will be determined by the trustees on the advice of the Scheme's Actuary.
You will also have the option to exchange part of it for acash lump sum which, under current regulations is tax-free.

If your retirement is at the instigation of your employer (but is not for misconduct) and you have been a member for over 10 years and you are aged 55 and over, you pension will be calculated as shown but the reduction for early payment may be waived by the Trustees.

pimento

GunJack wrote: »

Is the pension subject to actuarial reduction if you take it before normal retirement date (which you stated as 65)?

If so, the forecast you have could be lowered by around 25%, 5%-ish per year for retiring (and claiming the pension) early..

Or are the figures you quote above AFTER any actuarial reduction?

The figures are what I get when I log into their web site and mess around with the retirement date tool.

GunJack

Sounds like you may be in a win-win situation if made redundant, and won't lose much if you do end up packing it in before 60

pimento

Indeed. I fear they might have realised that they can just wait me out, though.

GunJack

pimento wrote: »

Indeed. I fear they might have realised that they can just wait me out, though.

Maybe, but if you ask what the early retirement reduction actually is, and if they would be willing to let you retire early or not, you'd have all the info to make an informed decision rather than guessing.....

mgdavid

With a DB pension you are building up the pension based on completed years of service. Beware the online calculator's figure for taking the pension at 60 will probably assume you have worked the year up to 60th birthday. However if you resign/retire at 59 you will have 1 less year's service so I would expect the figure to be different.


Further thought: if you don't NEED the c. £100k lumpsum then ask if there's a facility to forego some of it for a bigger annual pension.