Taking DB pension whilst still working and saving

mfox999

Hello, I am 57. I have a couple of old and relatively small DB schemes from previous employment. Both can payout once I am 60 to provide me with a pension akin the the state pension. However, I am currently paying into a DC type pension and may well want to continue into my early 60's. Will taking the DB pension mean my tax free allowances for pension saving will be cut? I am currently taking advantage of the large allowance and may well want to for a few more years yet.

Marcon

mfox999 said:

Hello, I am 57. I have a couple of old and relatively small DB schemes from previous employment. Both can payout once I am 60 to provide me with a pension akin the the state pension. However, I am currently paying into a DC type pension and may well want to continue into my early 60's. Will taking the DB pension mean my tax free allowances for pension saving will be cut? I am currently taking advantage of the large allowance and may well want to for a few more years yet.

No. No impact on how much you can pay into a defined contribution scheme if you take benefits from a DB pension, at least under current legislation!

mat1964

I have done just that.  Took a small DB pension last year and still pay £25-30k a year into DC.  It's a strange loophole but still.

Mick70

i know of quite a few people who have mix of DB and DC pension

Albermarle

mean my tax free allowances for pension saving will be cut? I am currently taking advantage of the large allowance and may well want to for a few more years yet.

It is better not to refer to 'tax free allowances ' when it comes to contributing to a pension , as no such thing exists .

You can claim tax relief, but how much  varies a lot from person to person depending on their taxable earnings , other income etc 

Otherwise as the DB pensions will be taxed at your marginal rate ( 20%; 40% ; 45% ) would it maybe be better to delay taking them until after you stop work ? Although not all DB schemes have the same rules on this point as far as I know,

mfox999

Thanks all. I currently pay a large proportion of my income into a pension under salary sacrifice through the company I work under and want to continue to do so for as long as possible. I was concerned that by taking my DB pension I would be constrained to a much lower allowance. It looks as though that does not apply. I can delay taking my DB pension, however, I gain little benefit from the pension provider by doing so. I can now plan for that and hope the Chancellor does not spoil it for me in the meantime.

Marcon

mfox999 said:

I can delay taking my DB pension, however, I gain little benefit from the pension provider by doing so. 

You might want to check with the administrators of each scheme exactly what you do gain - it could be better than you think. If the schemes have normal retirement ages of 60 (not clear from your post if that's the case, but the principles hold good even if NRA is a later age):

• the starting level of a DB pension is reduced when it is taken before the scheme's NRA to reflect the fact is being paid sooner than expected and will be payable for more years than if you'd waited until NRA. The reduction is intended to ensure that by the time you die, you've received the same overall amount of pension you would have received if you'd retired at NRA, but obviously it's a guessing game, and reduction factors, even if described as cost neutral, are usually slightly weighted in favour of protecting the scheme and its other members. The closer you get to NRA, the lower the reduction 
• DB pensions almost invariably increase between the time you leave active membership and the time you start to draw your benefits. Many DB schemes were contracted out of the state additional pension (SERPS) and had to provide something called a Guaranteed Minimum Pension instead. GMPs often increase at a very healthy rate and you might be pleasantly surprised.

mfox999

Thank you. I will investigate further. The pension comes from two sources, 25% from an old Civil Service pension that is due at 60, the other 75% is from a company pension where 60% is payable at 60, the remaining 40% is payable at 65 due to a pension change whilst I was employed. I have been assuming that given the majority is due at 60 and there is little benefit in not taking it, I would accept the reduction in the 40% of the company pension. However, I will look further.