Early Retirement?

carrspaints

I am considering early retirement, I have looked at the pros/cons and am hoping others may be able to give me advise, particularly with regards to accepting a CETV value on DB pension.

• I am 58, born 31st January. I should be entitled to a full state pension at 67.
• I have a workplace DC pension via L&G with current value of £164k
• I have a deferred DB pension valued this month @ £11,5k per annum based on retiring at 65. The CETV value for this DB pension is £344k
• My wife & I have no debts and are mortgage free
• We have £70k in savings
  
• My wife is 2 years older than me and will be entitled to 85% of her state pension via voluntary contributions. She does not work and has no other pension or source of income

I have the option of transferring my DB pension of 11.5k/annum to my DC pension with CETV @ £344K. I realize I need to seek advice and that this costs money, with the end result being that transferring out is often not recommended. However, I see little benefit in remaining with my DB pension scheme:

• I can only take this pension at 65. Any earlier and the amount I receive decreases for every year I retire prior to 65. If I want to retire at 60, that is a HUGE chunk I lose.
• If I die, my wife will only get 50% of my DB Pension. With my DC pension, she gets everything
• My DB pension increases by a maximum of 2% per annum and with current inflation rates, my DB pension is rapidly eroding in spending power.

A CETV of £344k + existing DC pot @ £164k = £508k that could potentially be invested in my L&G pension. I don't need to wait until 65 to get what would be about £1k/month from my DB pension.

So how much do my wife & I expect to live on per year in today's money? About £35k. That would cover all our holidays, living costs, vehicle expenses, house maintenance etc.

Based on the above, would you consider early retirement to be ill-advised or achievable?

Thank you.

xylophone

• My wife is 2 years older than me and will be entitled to 85% of her state pension via voluntary contributions. She does not work and has no other pension or source of income

 Your wife has obtained a state pension forecast?

https://www.gov.uk/check-state-pension

What exactly does it say?

 She does not work and has no other pension or source of income

Has she considered opening a SIPP? You may gift her £2880 which she can contribute to the pension and receive £720 in tax relief which the provider will claim from HMRC and add to her pot.

See

https://www.hl.co.uk/help/sipp,-drawdown-and-annuity/sipp/contributions/can-i-invest-in-a-pension-if-i-dont-have-earnings

NedS

It doesn't look to me like you can afford to retire early on an income of £35k/year.

The chances of receiving a positive recommendation, in the circumstances you describe, as close to zero based on previous discussions on this forum. But lets look at both scenarios anyway.

If you are unable to transfer, you have £164k DC pension plus £70k savings, giving combined assets of £234k. Assuming a 3.5% SWR, you could expect to draw around £8k per year from that - way short of your required £35k per year. At 65 you will have an additional £11.5k from your DB pension (plus £8.2k from your wife's SP), and an additional £9660 state pension at 67. So at 67 you will have hit your £35k target income but are way short of it for the next 10 years. How do you plan to plug that gap?

Assuming that you are able to transfer, you would have assets of £578k which at a SWR of 3.5% would give you £20k/year. This would increase to £38k at 67 once your state pensions kick in, but again you are way short of your £35k required income for the next 10 years.

You could take your DB pension early to smooth out your income over retirement (what is the DB income if taken early at age 60?), but I cannot see how your current assets will give you £35k per year from age 60 without taking massive risk in the first 5-7 years at the risk of running out of money later in retirement. You need to work a few more years and/or save a little more IMHO.

xylophone

I have a deferred DB pension 

When exactly were you a member of the scheme?

My DB pension increases by a maximum of 2% per annum 

Are you sure of this?

https://researchbriefings.files.parliament.uk/documents/SN05656/SN05656.pdf

Defined Benefit (DB) pension schemes provide pension benefits based on salary and length of service. There are statutory minimum requirements on them to:

• -  Index pensions in payment in line with inflation, capped at 5% for benefits accruing from service between April 1997 and April 2005, and at 2.5% for benefits accruing from April 2005 - known as Limited Price Indexation (LPI) (Pensions Act 1995, s51);

• -  Revalue the deferred pensions of early leavers in line with inflation capped at 5%, and at 2.5% for rights accrued on or after 6 April 2009 (Pension Schemes Act 1993).

  Importantly, these are statutory minimum requirements -there is nothing to prevent schemes from making more generous arrangements through their scheme rules.

xylophone

 I should be entitled to a full state pension at 67.

What  exactly does your state pension forecast say?

Albermarle

I have the option of transferring my DB pension of 11.5k/annum to my DC pension with CETV @ £344K. I realize I need to seek advice and that this costs money, with the end result being that transferring out is often not recommended. However, I see little benefit in remaining with my DB pension scheme:

Most likely transferring out the CETV is a non starter. Most people without a DB pension would be very glad to have one.

• I can only take this pension at 65. Any earlier and the amount I receive decreases for every year I retire prior to 65. If I want to retire at 60, that is a HUGE chunk I lose.

As you will get the reduced pension for 5 years longer, it usually works out about the same amount of money over an average lifespan. So you do not really lose at all, or only be a small amount maybe .

xylophone

I have the option of transferring my DB pension of 11.5k/annum to my DC pension with CETV @ £344K. I realize I need to seek advice and that this costs money, with the end result being that transferring out is often not recommended.

You have "safeguarded benefits" valued at over £30,000.

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pension-transfers-conversions

The FCA rules require that advice on pension transfers or conversions (from a scheme with safeguarded benefits or potential safeguarded benefits). must be provided by, or checked by, a pension transfer specialist and firms wishing to provide advice on pension transfers and pension opt outs must apply for and obtain special permission to carry out that activity.

https://www.fca.org.uk/consumers/pension-transfer/advice-what-expect

Bear in mind that fees will be payable whether or not the advice is a positive recommendation.

With regard to L&G, it appears that a transfer in will not be accepted unless the advice is positive. See page 3 here.

https://www80.landg.com/DocumentLibraryWeb/Document?reference=Q0052343_guide_to_pension_TVs.pdf

Dazed_and_C0nfused

Albermarle said:

I have the option of transferring my DB pension of 11.5k/annum to my DC pension with CETV @ £344K. I realize I need to seek advice and that this costs money, with the end result being that transferring out is often not recommended. However, I see little benefit in remaining with my DB pension scheme:

Most likely transferring out the CETV is a non starter. Most people without a DB pension would be very glad to have one.

• I can only take this pension at 65. Any earlier and the amount I receive decreases for every year I retire prior to 65. If I want to retire at 60, that is a HUGE chunk I lose.

As you will get the reduced pension for 5 years longer, it usually works out about the same amount of money over an average lifespan. So you do not really lose at all, or only be a small amount maybe .

This ^^^^

You're not usually losing anything.  It's just that you are choosing to take the pension earlier so the amount payable is reduced slightly to reflect the fact you are asking for it to be paid for a longer period.

carrspaints

Thank you all for the replies, some very useful information, some of which I did not realise. As NedS has said, it seems certain I will need to put in a few more years before considering retirement. To answer some of your queries:

1. My current state pension forecast is £9,660.86 a year, if I contribute another 8 years before 5 April 2031. I have 27 years of Full Contributions. Any early retirement would mean I would need to continue paying that period via voluntary contributions.
2. My Wife's state pension forecast is £8,280.74 a year, if we continue voluntary contributions to 12th January 2030. She has 22 years Full Contributions.
3. Regarding SIPP and gifting her £2,880 SIPP to receive £720.00 in tax relief, great tip and one I will follow through on.
4. Regarding my DB pension, I became a member of the scheme in August 2022. It became deferred in October 2017. I may have misunderstood how and what inflationary increases are applied. This is what it states: In broad terms these increases will usually be calculated using the statutory measure of inflation for the period from the date you left the Plan until the date you start to receive your pension. These increases are restricted to:

• A maximum of 5% per annum for your pension in respect of Pensionable Service before 6 April 2009;

• and A maximum of 2.5% per annum for your pension in respect of Pensionable Service after 5 April 2009.                     

The increases to the pension are calculated on a compound basis with the cap applied to each year of increase.

So if inflation is at 9%, then I guess the spending power of this DB pension is heading South?

Regarding the CETV option, I already see that this is almost impossible as it is unlikely to be approved, and yes, L&G and most pension companies will not accept a transfer unless approved. As was stated by Albermarle, taking this earlier does see an adjustment but as correctly pointed out, this works out to be not far off what I would get over an average life expectancy.

Thanks again for all the prompt responses. This support is invaluable to pension idiots like me.

carrspaints

One more query regarding my wife opening a SIPP, mentioned by Xylophone.

My wife has a S&S ISA with Vanguard which we opened for her in November 2021. There is only £5k in that which is invested in a lifestyle account.

Since she has an account with Vanguard, we'd like to open her SIPP with them too. There are 3 options when paying in:

1. She pays in using her debit card details
2. A 3rd party pays in (i.e., me) up to 2880.00
3. Her employer. Irrelevant since she is unemployed.
   

We have a joint bank account, so can she just pay in using her debit card and still enjoy the £720.00 p.a. tax relief? Or do I need to "gift" her the funds?

Thanks

xylophone

Regarding my DB pension, I became a member of the scheme in August 2022. It became deferred in October 2017. 

A typo presumably.

Do you mean that you became a member of the scheme in August 2002?

Regarding statutory increases see 

https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

The information aligns with what your scheme guide says.