Early Retirement - No Brainer?

ffacoffipawb

I have been quoted an early retirement pension of £9,200 from age 55 for a scheme with an NRD of 62.

The early retirement factor applied is 0.79.

Ignoring inflation, if I took this option at age 62 I will have received 7 x 0.79 = £5.53 pension per £1 due at NRD.

From NRD I will be 0.21 worse off per year.

Hence early retirement wins if 5.53 + 0.79y > y

I.e. y < 26.33

I.e. if I die before age 62 + 26 = 88.

Seems like a no brainer to take early retirement. It will also reduce any LTA charge on my other pensions.

Is there a flaw to this logic?

Dazed_and_confused

Can you live off the pension income rather than the current salary?

ffacoffipawb

Dazed_and_confused wrote: »

Can you live off the pension income rather than the current salary?

I can live on £9,200 plus £20,000 drawdown from my £550,000 drawdown pot.

I also have a smaller deferred pensio which is payable from age 60. Early retirement not an option because it comprises 80% GMP from 1993 revalued at 7.5%. Value at 60 projected to be £4,000.

I can also continue working (and not taking drawdown) and drawing the £9,200 as it is a different employment. I would still remain a basic rate taxpayer.

My thinking about the deferred pension is if I took it early I would be better off unless I live to age 88, which with my health issues (nothing very serious) is unlikely. Our family men generally make mid 70's if we are lucky.

AnotherJoe

Plus you get 7 years not working. Whats not to like. Go for it.

ffacoffipawb

AnotherJoe wrote: »

Plus you get 7 years not working. Whats not to like. Go for it.

The alternative is drawdown only until 62 and taking the unreduced pension then (and reducing the drawdown).

I think I would get more from the defined benefit by taking it early as it is very unlikely I will live to 88.

Aiki

Taking my DB at 55, 5 years early. My calc suggests I am up until age 85 so similar to yours. I am happy enough with that. This did not take into account the benefit of not spending my DC pension to cover years 55 to 60 if I did not take it, so much better off (or able to spend more now). Either way I was happy to go this route.

ffacoffipawb

Aiki wrote: »

Taking my DB at 55, 5 years early. My calc suggests I am up until age 85 so similar to yours. I am happy enough with that. This did not take into account the benefit of not spending my DC pension to cover years 55 to 60 if I did not take it, so much better off (or able to spend more now). Either way I was happy to go this route.

Main concern is higher DB later gives a better mix of secure income to the insecure defined contribution income.

God knows what would happen to the latter if that shower of a Labour party got into power. The current lot aren't great but I fear the alternative.

Linton

ffacoffipawb wrote: »

Main concern is higher DB later gives a better mix of secure income to the insecure defined contribution income.

God knows what would happen to the latter if that shower of a Labour party got into power. The current lot aren't great but I fear the alternative.

In my view It is a mistake to allow your political prejudices to influence your investing. National and world events will happen completely outside your control, As far as possible you should structure your investments to be resilient at least against any localised points of failure.

If you have built a properly diversified portfolio the great majority of your investments will be in foreign companies or in companies that do most of their business overseas. So your DC pension will be protected from possible future disasters for the UK like a Tory BREXIT and Boris as PM. You may well benefit from them as the pound falls against other currencies the value of your holdings will increase in £ terms.

As is so often the case, in difficult times the average person dependent on earned income will suffer whilst those of us who have accumulated substantial diversified assets will get relatively richer.

Aiki

ffacoffipawb wrote: »

Main concern is higher DB later gives a better mix of secure income to the insecure defined contribution income.

God knows what would happen to the latter if that shower of a Labour party got into power. The current lot aren't great but I fear the alternative.

True, that by the time I get to 75, the early DB annual figure is down by 10-15% on full DB figure, but I will also be on State Pension by then and would still have DC left. HOWEVER all of these are just figures on spreadsheets and how that impacts on reality in 20-30 years time is all just a guess. I have slept on this for months and still think I can live with it. The decision makes sense with the information I have today. Good luck with your decision.

ex-pat_scot

Linton wrote: »

In my view It is a mistake to allow your political prejudices to influence your investing. National and world events will happen completely outside your control, As far as possible you should structure your investments to be resilient at least against any localised points of failure.

If you have built a properly diversified portfolio the great majority of your investments will be in foreign companies or in companies that do most of their business overseas. So your DC pension will be protected from possible future disasters for the UK like a Tory BREXIT and Boris as PM. You may well benefit from them as the pound falls against other currencies the value of your holdings will increase in £ terms.

As is so often the case, in difficult times the average person dependent on earned income will suffer whilst those of us who have accumulated substantial diversified assets will get relatively richer.

In my view, you have to be absolutely alert to the possible consequences of changes in political power.
As you say, the sensible plan is a globally diversified portfolio.
However my biggest perceived risk to my plans is not the state of the UK economy, but rather the political tinkering and taxation plans of the government.
Specifically:

1. changing the age at which you can access your personal pension (Osborne once said that 55 is far too early to stop work, and there have been suggestions of pegging the earliest access to SPA minus 10 or even SPA minus 5)

2. tax on pensions:

2a - pension tax relief changes - flat rate or cut to HR relief

2b - NICs or other tax on receipt of "pension income". There has been recent noise about pensioners paying their way in terms of the great cost they place on the NHS


2c - further AA or LTA restrictions

These are the main ones on my radar.
For these reasons, I am alert to the risks posed by politicians!

Linton

ex-pat_scot wrote: »

...
1. changing the age at which you can access your personal pension (Osborne once said that 55 is far too early to stop work, and there have been suggestions of pegging the earliest access to SPA minus 10 or even SPA minus 5)

2. tax on pensions:

2a - pension tax relief changes - flat rate or cut to HR relief

2b - NICs or other tax on receipt of "pension income". There has been recent noise about pensioners paying their way in terms of the great cost they place on the NHS


2c - further AA or LTA restrictions

These are the main ones on my radar.
For these reasons, I am alert to the risks posed by politicians!

If you are still relying on earned income you are more vulnerable.

It is always sensible to be alert to what is happening in the world but there is nothing you can do about it. If your predictions are wrong the changes you make to deal with them could be counter productive and the things that you did not think might happen could well be more important. The best you can do is to ensure that your assets and sources of income are as diversified as possible and deal with events with equanimity.

The type of changes you mention are certainly not restricted to any particular party. Personally I would agree with some of them, in particular taxing unearned income to account for the services such as the NHS which are available to everyone.