Pension options - DB DC until SP

happyc84

Hi just looking see what options we souls consider.
Just realised that time is catching up at age 55.

Moved job, so pension will now be DC - plan is to pay as much into pension to reduce tax. Mortgage is due to be paid off next year.
DB pension is now frozen. pays out just over 1/3 of old salary which  would give 20k pa at age 63. SP would pay out 9k at 67.
have some savings roughly 80k.

My question is say i work another 8 years is there anyway to access the db amount or should I just let it run until then.
OH has DB pension and will have full SP as well.

sevenhills

happyc84 said:

My question is say i work another 8 years is there anyway to access the db amount or should I just let it run until then.
OH has DB pension and will have full SP as well.

My Local Government Pension Scheme regulations changed on 14 May 2018 to allow payment of deferred benefits from age 55, deferred pensions go up by 3.1% in April 2022

p00hsticks

happyc84 said:

My question is say i work another 8 years is there anyway to access the db amount or should I just let it run until then.

I'm not sure I understand your question ?

If you mean can you effectively 'cash in' your DB pension, then its theoretically possible but realistically very hard - you'd need to get a CETV ('cash equivalent transfer value') from the pension provider, and if it;s over £30,000 - which paying £20k a year it certainly will be - you would need to pay for advice from a suitably qualified financial advisor if you wanted to transfer it into a personal pension or similar. And, as frequently discussed on this board,  you will find that fewer and fewer FAs are prepared to take on this work, and those that do will charge several thousand pounds at least for the advice. Although theoretically you are not under any obligation to follow their advice, if they recommend that it is not in your best interests to transfer out, you will then struggle to find a pension provider willing to receive your pot as an 'insistent client'.

If you mean can you start accessing your DB pension before the normal scheme retirement age, then it will depend on the rules of the particular scheme, but most allow you to take pensions early with a reduction (typically 5% for each year).

The usual recommendation for people wanting to retire early with a mixture of DB and DC pensions is to use the DC pension until you reach the NRA for the DB scheme, althoguh it does depend on your circumstances (e.g. if you think you may never need to  touch the DC pension and so want to leave it to others after your death )

P.S. I suspect that your DB pension is actually 'deferred' rather than 'frozen'.

happyc84

yes thank you poohsticks you are right its deferred. I haven't asked for the CETV figure, but will do so. Your advice is good so thank you again.

I could take DB pension now with reduced value I think it reduces by 2% for every year taken early.
Also option  to take lump sum and reduced DB, but if i'm working tax bill would be higher,

Do most people park their DB pension until they stop working?

Dazed_and_C0nfused

happyc84 said:

yes thank you poohsticks you are right its deferred. I haven't asked for the CETV figure, but will do so. Your advice is good so thank you again.

I could take DB pension now with reduced value I think it reduces by 2% for every year taken early.
Also option  to take lump sum and reduced DB, but if i'm working tax bill would be higher,

Do most people park their DB pension until they stop working?

No, they take it when they reach the schemes pension age.

With some schemes there is no arrears paid for choosing to take it later than NPA so you are just giving up money when even if tax would be due you would get to keep 60% or 80% of if.

p00hsticks

happyc84 said:

I could take DB pension now with reduced value I think it reduces by 2% for every year taken early.
Also option  to take lump sum and reduced DB, but if i'm working tax bill would be higher,

That's a generous reduction (for comparison, my pension scheme has a 4%, 7% or 10% reduction for retiring 1,2 or 3 years early.

I think you need to confirm that before you make any decision, and also find out a) what the normal retirement age (NRA) for the scheme is,  and b) whether payments would increase if you went beyond that date - again, for comparison, my scheme would pay 7%, 15% or 23% more for going 1,2, or 3 years past the NRA before claiming.

Albermarle

happyc84 said:

yes thank you poohsticks you are right its deferred. I haven't asked for the CETV figure, but will do so. Your advice is good so thank you again.

I could take DB pension now with reduced value I think it reduces by 2% for every year taken early.
Also option  to take lump sum and reduced DB, but if i'm working tax bill would be higher,

Do most people park their DB pension until they stop working?

As said a 2% reduction for each year taken early is very low , although I note you say 'I think' so probably best to check again.
If it is 2% it would be better to take it early as the more years you would get the reduced pension would easily offset the reduction. However as you say you will pay tax on it whilst you are still working. If you stop work before state pension is due then you will have a personal tax allowance of £12570 to use . So could be a bit of a 50:50 decision.

When you get the CETV it will very likely be a larger figure than you  expect . This is because providing a guaranteed inflation linked pension for life is very expensive ( I am presuming your DB pension has some kind inflation link as most do ) .
The default position of the financial authorities is that it is usually not a good idea to transfer out and they have made it quite difficult ( but not impossible ) to do so.