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Should I take my final salary pension early with or without a lump sum?
11 replies 1K views
I recognise first of all that I am in a very fortunate position. I have a final salary pension from a large private sector organisation who employed me for 17 years until mid-2012. Since then I have had mainly contract work and most recently I was 2 months into a 9-month contract when I was furloughed - I don't expect to be going back when furloughing comes to an end. I therefore may need to start taking my pension early (I'm 62 next month and my normal retirement date is July 2023). I recently asked for an up to date valuation of my pension comparing taking it at the beginning of October this year with waiting until July 2023. Without any lump sum, my annual pension will be £17,000pa if I take it later this year compared with £19,000pa (at today's prices) if I wait until July 2023. If I take the maximum tax free cash, this year I would receive £82.5k tax free with a reduced pension of £12,500pa compared with £92.2k tax free and a reduced pension of £14,000pa. I've tried to compare these different options looking forward over the next 25-30 years and it would appear that, in terms of total cumulative income, taking my pension this year (with full tax-free lump sum) is worthwhile up to the age of 78 - if I live longer than that, then some of the other options look preferable. I have had health issues over the last couple of years including prostate cancer which is currently in remission, so I am hopeful of living for a few more years yet! However, I also know the chances of it returning at some point are quite high. My question is, should I opt for the pension this year and if so, should I be taking the full lump sum with it?