Can I get some sort of loan to access PCLS early?

ProDave

I am not sure if that is my scheme or not. I left employment of UKAEA in 1993 and my pension is in the scheme in place at that time.

That link is to a combined pension scheme and was only formed in 1997. What I don't know is whether my scheme amalgamated into that, or is still a separate entity.

I shall contact the new scheme administrator for my scheme and ask them if it is possible to draw it early.

ProDave

An update. I have just contacted the new administrator of the UKAEA pension scheme and they have confirmed I can now draw this pension early. Basically for each year you draw the pension early, it is reduced by 5% so if I draw it say 3 years early that is reduced by 15%

That sounds a big drop to me. It basically sounds as though they expect to pay the pension for 20 years on that calculation. So put simply, if I live beyond 80 I would be worse off for taking it early.

I need to do some sums to work out the true cost of drawing it early with that reduction Vs the cost of a loan for my building work. I really only need the PCLS now not the actual pension but there is no way to do that.

The deciding factor will be tax. I think I would just remain a basic rate tax payer even if that pension pays out now, but if I wait until I actually retire (i.e stop working) then my income will be lower and most of the pension would then be paid tax free.

EDIT:

I have now crunched the numbers.

The pension itself is as I expected pretty neutral if it is assumed I live to 80, the total paid out regardless of when it starts is about the same. However taking the reduced PCLS and the increased tax on the first few years payment, I would be nearly £7K worse off taking it early.

If you look longer term and assume I make it to 90, I would be £18K worse off, because of the reduced pension paid of course.

So it is looking like the best option is a personal loan, as the interest would be lower than the "penalties" for drawing the pension early.

jimi_man

It doesn't quite work like that, though in the early years it's not far off. I believe (hoping someone will correct/confirm this) that the reductions are not straight '5% per year' but they are cumulative. So 5% the first year but after five years, it's around 22% reduction for example.

Of course that makes little difference in your case, as it will be probably just under 15% still, it's over a longer period that it seems to have more effect.

Otherwise after 20 years (if you could do that) it would all be gone!

The LGPS as an example, after 13 years (13 x 5 =65% reduction) is actually only around 46% reduction.

ProDave

I will await the actual figures from the pension provider, and re run my figures when I get them.

MallyGirl

ProDave wrote: »

So it is looking like the best option is a personal loan, as the interest would be lower than the "penalties" for drawing the pension early.

I may have missed something but I thought that the loan wasn't an option as your salary was too low

ProDave

I think the issue with a loan is we won't get one from our present bank. We already have a loan for a car, and during the process of that, it seems they pretty much discounted any self employed income I have because of a few details of how it is accounted for. So that car loan was taken out in my wifes name, not a joint loan as they believed her PAYE income.

So if I go looking for a loan it would probably have to be with somebody else and I still have to go looking for another provider, probably on line.

It looks like the ideal solution I wanted, an interest only loan, and repay the capital when I get the PCLS is not an option anywhere.