What's the best way of taking my DB & DC pension @ 55 please?

itsmeagain

Hi there!

I’m fairly new to this subject and although I appear to be in a reasonable position, it’s by more luck than judgement. I’d like some advice on how best to take my pension please. I’ll list as much as I think is relevant but please ask if I’ve missed anything!

I’ll soon be 55 and the events of this year have got me thinking more about my pension and retiring soon.

Luckily, I joined my company DB scheme at 16 and will soon achieved 38/60ths. It was a finally salary scheme until 3 years ago when it changed to a CARE scheme.

My early retirement quotes for DB are;

DB @ 55 = 27809, DB @ 56 = 29226, DB @ 57 = 30661, DB @ 58 = 32210, DB @ 59 = 33864, DB @ 60 = 35753, although I don’t think that the figures consider that I will have a new statement and gained another 1/60 by the time I’m 55.

Offered transfer = £1,020,000

I’m still an active member of the DB but have also used the DC scheme (with no company contribution) as an AVC for the last few years to avoid paying 40% tax & NI. The DC scheme should have around £85,000 in it @ 55, plus I also have another £65000 in savings.

I’m married with 2 self-sufficient adult children, no mortgage/loans, no other income.

My wife is a part-time self-employed low earner with an old DB that should pay around £4kpa. I’m looking at setting up a SIPP for her to get the 25% tax boost (mentioned on another thread).

Both of our state pensions appear to be 3 years short (we will pay stamp).

I think that I have 4 options. Please let me know if there are others?

(1)    Transfer/drawdown of DB & DC (already at the limit) with another £65,000 savings

(2)    Take DB @ 55 (£27809 PA) and have £150,000 in AVC & savings to use ‘as and when’ (taxed on drawdown).

(3)    Use my DC & savings over the next few years (no tax) and defer taking DB for a better ERF

(4)    I have not described the offer of a 1/4 lump sum in exchange for part of my DB because I think that it’s poor value.

So, what to do? Get the DC out tax free in next few years & defer the DB, or take the DB from 55 and if I don’t draw my DC I can ‘pass it on’ when I’m gone?

Dazed_and_C0nfused

My early retirement quotes for DB are;
DB @ 55 = 27809, DB @ 56 = 29226, DB @ 57 = 30661, DB @ 58 = 32210, DB @ 59 = 33864, DB @ 60 = 35753, although I don’t think that the figures consider that I will have a new statement and gained another 1/60 by the time I’m 55.

Are those figures for both elements of the DB scheme combined?

(1) Transfer/drawdown of DB & DC (already at the limit) with another £65,000 savings

What about thet potentialtress of losing £100k+ in a week?

Your DB pension seems like a brilliant base, particularly as your wife doesn't have a similar DB pension in reserve.

SMcGill

What income do you want to achieve? 

itsmeagain

Dazed_and_C0nfused said:

My early retirement quotes for DB are;
DB @ 55 = 27809, DB @ 56 = 29226, DB @ 57 = 30661, DB @ 58 = 32210, DB @ 59 = 33864, DB @ 60 = 35753, although I don’t think that the figures consider that I will have a new statement and gained another 1/60 by the time I’m 55.

Are those figures for both elements of the DB scheme combined?

Yes they are the combined amount for the original final salary DB and the last 3 years in CARE.
April 2020 statement looks like this...
CARE 2019/2020 £844.54 (CPI)
CARE 2018/2019 £968.60 (CPI)
CARE 2017/2018 £1,009.59 (CPI)
FS Pension to 5 April 2017 £33,923.36 (CPI post 2009, RPI pre 2009 if deferred or in payment)
Total £36,746.09
The DB figures @ 55-60 in my 1st post, are based on this total with ERF's applied.
The reason for the CARE 2019/2020 being only £844.54 is that I switched from a 1/60 to a 1/70 scheme for that year to enable a 7% instead of 11% contribution. I paid more than the 4% saving into the DC, in view of using using the DC to bridge the gap between retiring early and taking a deferred DB because the ERF's were so penalising. This year, the ERF's have been reviewed and become more favourable, increasing my DB @ 55 by £4k pa, hence I may take my DB earlier than previously thought.
I'm not really considering a transfer option because I don't want to have the stress of the gamble.

Albermarle

I'm not really considering a transfer option because I DON'T want to have the stress of the gamble

Presume you missed a word out ? In any case I would agree to hold on to the DB scheme. It is great base to have .

As far as taking it before 60 the commutation rates at around 4.5% look about typical . So its a personal decision but I wouldn't take it whilst I was still working or you will pay 40% tax on it .

itsmeagain

SMcGill said:

What income do you want to achieve? 

As much as possible - but realistically, it will be enough however I take my DB & DC.
I don't want to pay tax on my DC. I could do that by taking my DC 1st (25% & 12.5kpa) and deferring my DB, OR taking my DB and passing-on 75% of my DC when i'm gone (assuming I don't need it in my lifetime). This would give my wife 50% of my DB and the remainder of the DC to my wife/kids.

itsmeagain

Albermarle said:

I'm not really considering a transfer option because I DON'T want to have the stress of the gamble

Presume you missed a word out ? In any case I would agree to hold on to the DB scheme. It is great base to have .

As far as taking it before 60 the commutation rates at around 4.5% look about typical . So its a personal decision but I wouldn't take it whilst I was still working or you will pay 40% tax on it .

Thanks - you are right - I've corrected it...

ussdave

What pension scheme is it?  As you mention that the AVC is linked you may be able to draw all of that money tax free when you take your DB pension.  It would depend on the scheme rules but USS and LGPS both allow it I believe.

Dox

How about investing in proper financial advice, given the sums involved? Expecting people to 'advise' on the basis of a couple of paragraphs isn't realistic. Plenty will venture an opinion, but in the absence of full knowledge of all relevant factors, it is unlikely to be the best one for you.

itsmeagain

ussdave said:

What pension scheme is it?  As you mention that the AVC is linked you may be able to draw all of that money tax free when you take your DB pension.  It would depend on the scheme rules but USS and LGPS both allow it I believe.

My 38 year active DB scheme membership is with a well know large Midlands manufacturer that stopped new members joining many years ago and arranged a DC scheme for new members. This used to be Zurich and now Scottish Widows. I have only been in the DC scheme for 4 years to use it as an AVC, so it does not have the same benefits as some older linked AVC's.

Albermarle

Then it is not an AVC at all , but a standalone DC workplace pension .
The Money4Life pension you are in ( I am as well) has a clunky website ; only offers SW funds ( although quite a lot ) but has low charges . Also no charges for drawdown and the low charges stay the same when you leave the employer ( as far as I know )