LGPS - Question Time

GunJack

Johnnyboy11 wrote: »

Well, I have a deferred LGPS pension, which I plan to start at age 56 and expect a 20% ish reduction, owing to 'Rule of 85' protection kicking-in then. The advantages for me are..

- I can retire very early
- Little or no income tax payable, as pension will mostly be within my personal allowance
- Smooths out back-end loading when the State Pension kicks-in
- Leaves my SIPP and S&S ISA funds earning tax-free in the background
- Plugging the numbers into a spreadsheet suggests I'd need to be drawing breath after age 85 before losing out. I'm happy carrying that risk.


As a bonus, the lump sum element will be recycled back into my SIPP, or my wife's, all within the rules, so I'll/ we'll get a second round of tax relief.


Not sure if I'd jump given a 44% reduction, but the above logic would still apply...

That's unusual, most people would live off the SIPP/ISAs to get the DB pension with no actuarial reduction...

k6chris

GunJack wrote: »

That's unusual, most people would live off the SIPP/ISAs to get the DB pension with no actuarial reduction...

I guess this is the argument I am struggling to grasp fully. Taking a DB pension early with the associated actuarial reduction, means you get a lower amount of pension but for a longer period of time. If that is a good or bad thing depends largely on how much the reduction is and how long you expect to receive the payments for. Using SIPP/ISA to get the DB with no reduction makes sense if the reduction of taking your DB pension early is significant, but may not be the case if the reduction is minor. The problem I have is working out what that cross over reduction value is?? A 0.001% reduction per year and taking the DB early is a no-brainer - a 10% reduction per year and no-one would take it 12 years early!! So what is the reduction level at which taking DB pension early, and keeping your SIPP / ISA intact, makes sense??

AlanP_2

I don't think there is a magic number / formula to decide this.

It's all down to your own NUMBER and how that will be funded by any combination of sources and how comfortable you are with guaranteed DB or market-returns from DC / ISA (if you have both options).

Is this the only DB element or do you have more guaranteed sources of income? If it were my only one I would probably defer as long as possible as the "guarantee" element would be important.

Overall "family unit" situation?

Johnnyboy11

AlanP wrote: »

...Overall "family unit" situation?

I think that's the key, we have a real mash-up on the pension front: 4xDBs, 2xSIPPs, 2xS&S ISAs, 1xF&SA, 2xSPs and counting. Generally the early retirement plan is savings then ISAs then SIPPs then DBs then SPs, but the profile is really back end loaded, unless we start one or more of the DBs early.



Arguably one could safely withdraw 4% per annum from a DC pot in perpetuity (the 4% rule). Using that logic, a 5% actuarial reduction for taking a DB pot a year early doesn't seem unreasonable or punative.