Deferred DB taking early , no reduction

Dunky62

Hi

I have a deferred DB pension ( Exxon ) with NRA of 65.  Apparently I can take it early from age 60 with no reduction. I am 60 in December this year.  However as i am still working, I intended to wait a couple of years until I retire, rather than take it and pay 40% tax on it. I assumed that the fact i didn't take what would be approx. 15k a year for the next 2 or 3 years would be reflected in my eventual pension figure.  Spoke to Willis Towers Watson yesterday and apparently not!!  In deferment it just increases with RPI capped at 5%.  Is this normal?   I now feel it is a no-brainer to take it at 60. I am fortunate that my present employer  scheme ( also DB ) has an AVC  which I can pay this Exxon pension into, effectively cancelling out the 40% tax. This AVC can be taken as a tax free lump sum when I retire , provided it is less than 25% of total pension benefits. Does this make sense?

Thanks

Dazed_and_C0nfused

has an AVC which I can pay this Exxon pension into, effectively cancelling out the 40% tax. 

Have you done the maths on that?  You normally lose 10% (of the taxable pension) in the scenario you are describing.

Silvertabby

But if he doesn't take the pension, then he'll lose 100%.

Pretty normal for a deferred pension not to accrue late payment increases before scheme NRA, even if the unreduced date is earlier than that.

Dunky62

How do i lose 10%.   If I take the 15k and pay 40% tax. ie receive 9k.  If  I Then pay 15k  salary sacrifice into AVC, It comes off the top line and i save the 40% tax,  so for an investment of 15k , surely it will only cost me the 9k I have received in Exxon pension.  Or am I being a bit thick?   Cheers

AlanP_2

Dunky62 said:

How do i lose 10%.   If I take the 15k and pay 40% tax. ie receive 9k.  If  I Then pay 15k  salary sacrifice into AVC, It comes off the top line and i save the 40% tax,  so for an investment of 15k , surely it will only cost me the 9k I have received in Exxon pension.  Or am I being a bit thick?   Cheers

If you are benefiting from SS then you will be making money I think as you will save 2% NI on the way in to AVC. The comment about losing 10% may be mistaken in your case as you can take the AVC fully tax free by the sounds of it, most people don't have that option.

SarahB16

Dunky62 said:

Hi

I have a deferred DB pension ( Exxon ) with NRA of 65.  Apparently I can take it early from age 60 with no reduction. I am 60 in December this year.  However as i am still working, I intended to wait a couple of years until I retire, rather than take it and pay 40% tax on it. I assumed that the fact i didn't take what would be approx. 15k a year for the next 2 or 3 years would be reflected in my eventual pension figure.  Spoke to Willis Towers Watson yesterday and apparently not!!  In deferment it just increases with RPI capped at 5%.  Is this normal?   I now feel it is a no-brainer to take it at 60. I am fortunate that my present employer  scheme ( also DB ) has an AVC  which I can pay this Exxon pension into, effectively cancelling out the 40% tax. This AVC can be taken as a tax free lump sum when I retire , provided it is less than 25% of total pension benefits. Does this make sense?

Thanks

I would wish to get this in writing before taking it at 60.  

Dazed_and_C0nfused

Dunky62 said:

How do i lose 10%.   If I take the 15k and pay 40% tax. ie receive 9k.  If  I Then pay 15k  salary sacrifice into AVC, It comes off the top line and i save the 40% tax,  so for an investment of 15k , surely it will only cost me the 9k I have received in Exxon pension.  Or am I being a bit thick?   Cheers

No, just changing what you intend doing.

In your original post you said this,

which I can pay this Exxon pension into

Your £15,000 would be £9,000 after tax.  

You pay £9,000 into a relief at source scheme which is a gross contribution of £11,250.  If full higher rate relief is due this saves you £2,250 in income tax.

So your £15,000 has become £13,500 (£11,250 in a new pension plus £2,250 tax saving).  Still better than the original £9,000 but not cancelling out the 40% tax originally deducted.

But all immaterial now as you aren't going to pay it into another pension.

Dunky62

Sorry for the confusion, and thanks very much for the replies. I will definitely get it confirmed in writing that I can take it at 60 unreduced. Cheers

xylophone

I would wish to get this in writing before taking it at 60.  

Assuming this is the OP's scheme

https://corporate.exxonmobil.com/-/media/Global/Files/Offer-letter-attachments/UK_Pension_Plan_Member_Guide.pdf

If you leave after two or more years’ qualifying service

You will be entitled to a pension at your normal retirement date. It will be based on your last 12 months’ pensionable salary and pensionable service when you leave the Plan, and then increased each year to take account of inflation. This is called a deferred (or preserved) pension. You can take this when you reach 65, or 60 if you left after 23 March 1997, without any reduction. 

The OP has not mentioned consulting his scheme booklet - he might find the above of interest.

Jacklob

I have an Aviva staff pension with an NRD of 62 but I can definitely take it at age 60 with no reduction in benefits. (and my husband did this 3 years ago but his NRD was 65 and he could take it at 60 also without any reduction). I think it,s because this scheme is an amalgamation of various schemes, as I started with GA life, it merged with Commercial union then was taken over by Norwich union, maybe they are trying to equalise benefits or something.

The sneaky thing is, however you have to REQUEST to take the benefits at age 60 within at least 3 months prior. If you are unaware of this clause and many could be (as its hidden in the pension scheme booklet at the back), you lose 5 years pension. My friend, unfortunately did just this AND lost thousands. I had lost touch with her during this period otherwise I would have pointed this out to her.

Dunky62

Hi  xylophone. Thanks, i have read this and i am pretty sure I left in 1996. I will check and confirm the situation.
Cheers