Taking DB pension early

A_T

Secret2ndAccount said:

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.

It's a local government DB pension so I'm not sure if this applies?

RetSol

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

It's not all about numbers.  It depends on your circumstances and what other assets you have.   I took my DB pension earlier than I might have done because I wanted the security of knowing that I had a fixed income.  I could have lived on savings/dc pot for a bit and deferred taking the pension but then I would have had less in the bank and fewer investments. I am glad that I have that fixed income now given the uncertainties brought about by the pandemic. At the end of the day (metaphorically and literally as BJ would say), I want to sleep at night.... 

Silvertabby

A_T said:

Secret2ndAccount said:

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.

It's a local government DB pension so I'm not sure if this applies?

Yes.  Commutation rate of 1:12  on top of the early retirement reduction.

Secret2ndAccount

A_T said:

It's a local government DB pension so I'm not sure if this applies?

Yes, I think that might be exactly one of the pensions I'm talking about. I would advise you to check your scheme rules or work it out from your offer letter. Assuming this 12:1 applies to you, look at it this way:

If I said you could knock £12,000 off your lump sum and get an extra £1,000 per year for life, increasing every year with inflation, which way would you go?

Maybe you have an important use for your lump sum;

If you take the lump sum, it's available to inherit. Left in the pension, it can't be inherited.

Value for money wise, the £1k per year looks a much better deal over an average lifetime, and you are considering starting at 55.

It's up to you...

DT2001

Spreadsheet time. I took my DB at 51. The breakeven point, I reckoned was about 74/5, however at the time I was stay at home Dad with minimal self employed income. Pension was/has been tax free all bar one year. So on balance I thought that a good idea to have money in my pocket. OH earned good money so actually invested most of it.
In your case depends on p/t income and your number. My other thought was that if you do not use/use less SIPP now you would have the ability to tailor your drawdown to your needs - one off luxury holiday or better care in later life.

A_T

Secret2ndAccount said:

A_T said:

It's a local government DB pension so I'm not sure if this applies?

Yes, I think that might be exactly one of the pensions I'm talking about. I would advise you to check your scheme rules or work it out from your offer letter. Assuming this 12:1 applies to you, look at it this way:

If I said you could knock £12,000 off your lump sum and get an extra £1,000 per year for life, increasing every year with inflation, which way would you go?

Maybe you have an important use for your lump sum;

If you take the lump sum, it's available to inherit. Left in the pension, it can't be inherited.

Value for money wise, the £1k per year looks a much better deal over an average lifetime, and you are considering starting at 55.

It's up to you...

unfortunately I don't believe inverse commutation is available to me