Taking DB pension early

A_T

I will be able to take my DB pension at 55 - at about 80% of what it would be if I were 60. I have no mortgage, no dependents, good SIPP and will probably work part-time only, full state pension at 67. It seems to me a good idea to take it early my reasons being: better to have the money during the younger, healthier years of my life - it will give me more lifestyle choices - and any excess I can always invest in the stockmarket for later on.

The only downside I can see is having less guaranteed income when I am older. Am I missing anything?

Dazed_and_C0nfused

Potential tax hit if working as well.

Bimbly

If you have a good SIPP, why not take the money out of that first? Your SIPP investments can fluctuate up or down and are not guaranteed. Then take your full DB pension at 60 which is guaranteed and, presumably, index linked without risk of falling in value. You end up drawing on more from your SIPP early on this way, but this seems a more sensible route to me.

Albermarle

From a purely financial point of view , there is usually little in it . A reduced annual pension for a longer period of time or a higher pension for a shorter number of years .
As above though there maybe other considerations. If you are likely to hit the LTA threshold it is usually a good idea to take the DB pension early , as it will contribute less LTA %.

A_T

Bimbly said:

If you have a good SIPP, why not take the money out of that first? Your SIPP investments can fluctuate up or down and are not guaranteed. Then take your full DB pension at 60 which is guaranteed and, presumably, index linked without risk of falling in value. You end up drawing on more from your SIPP early on this way, but this seems a more sensible route to me.

Good points. One reason I'm keen on taking it early is I don't have a spouse - when I'm dead the pension vanishes and noone benefits. But I do have nephews and nieces I'd like to leave something to. By taking it early I feel I'm maximising the likelihood of getting benefit from the DB pension

RetSol

It seems to me a good idea to take it early my reasons being: better to have the money during the younger, healthier years of my life - it will give me more lifestyle choices - and any excess I can always invest in the stockmarket for later on

I took my db pension early at 56 for similar reasons and in similar personal circumstances.  I am starting out in self-employment now.  I intend to work part-time but carry on until I am 90!  The pandemic is curtailing my work at the moment but the pension is taking the stress out of paying the bills. You can mitigate the tax hit by continuing to pay into the SIPP. 

Bimbly

A_T said:

when I'm dead the pension vanishes and noone benefits. 

That is a good reason. I forget to think along those lines as I have no one to leave anything to.

TVAS

I am all for taking the non guaranteed pension first, taking tax free cash as income, then pension income from SIPP, then DB then state pension. You can contribute more than 4k p.a. to a pension when you have only taken tax free cash only reduced to a maximum of 4k p.a. when you start taking drawdown income.

So less tax paid, still have guaranteed pensions, still able to contribute to another pension, starting with a higher DB pension that has not been reduced due to early retirement. 

TVAS

Also why not put some of that TFC into a National Savings premium bond you may win a prize.

Steve182

Do you smoke? Do you drink more than is healthy? Are you fit or unfit, reasonable weight or underweight/overweight, have any medical conditions or family history that may affect your life expectancy etc etc?
I'm no expert but I would think these are things you should consider in your decision?
If you expect to live long, preserve your DB pension and spend the SIPP, if you think you may struggle to reach 75 then perhaps that's the wrong approach?

Secret2ndAccount

It is not wrong to take the DB pension early. It is normally close to neutral over an average lifetime. As you state, you have no use for the spouse's pension.

Whether it's the best thing to do depends on your particular circumstances. Peer into the future. At 85, will your SP + DB meet all your needs, even if the DB is taken early, and paid at the lower rate? If so, then I would be very tempted to take it early. Otherwise you are giving up money now in exchange for money you don't need at age 85. If you can't say yes to this, then perhaps it's better to hold the DB back. You might not be so good with money matters at 85, and having a guaranteed monthly income that covers all your bills is beyond valuable.

Give great consideration to the lump sum from your DB. I've seen commutation rates as low as 12:1 commonly stated on here. If you are carefully (and sensibly) considering when to take your DB, why would you give up annual DB pension in exchange for 12 yrs worth of cash? I know it's tax free, so call it 16 yrs worth. That's still a horrible rate.  So perhaps you could take your DB early but with a reduced lump sum so that the monthly amount comes out the same.

Need to make a spreadsheet and look at your personal numbers. There's no fixed answer.