taking DB early calculation

A_T

Single. No dependents.

If I take my DB at 55 I will get £25,630 per year

If I leave it until 60 which is the start date unless I request otherwise I will get £32,947

Leaving aside the probabilities of inflation and investment growth/fall at what age will I start to benefit from having waited until 60? Just on the bare figures I calculate when I am 78. Am I right?

Dazed_and_C0nfused

Looks about right.

23 years of the reduced pension is £590k

18 years of the unreduced pension is £593k.

But the unreduced pension will increase quicker so in reality it will be less than 18 years.

JoeCrystal

Getting your scheme rules book and working it all out on your spreadsheet seems the best answer, especially if it depending on index-linking rules as well

Brie

Are you going to stop working?  If so when?  

And won't the pension increase in value each year?  Some do, some may not?

eskbanker

A_T said:

Leaving aside the probabilities of inflation and investment growth/fall....

Unless the scheme rules don't apply inflationary increases, this will affect the comparison, so it seems pointless to make a calculation from assumptions known to be inaccurate.

Obviously the scale of such increases over the five years between 55 and 60 aren't known at this stage but assuming 0% doesn't seem a sensible approach - even at 2%, that would push the breakeven point back by about five years....

A_T

eskbanker said:

A_T said:

Leaving aside the probabilities of inflation and investment growth/fall....

Unless the scheme rules don't apply inflationary increases, this will affect the comparison, so it seems pointless to make a calculation from assumptions known to be inaccurate.

Obviously the scale of such increases over the five years between 55 and 60 aren't known at this stage but assuming 0% doesn't seem a sensible approach - even at 2%, that would push the breakeven point back by about five years....

thanks for this.

I don't do spreadsheets - not clever enough. Is there an online tool that will allow me to model outcomes according to different inflation values?

NedS

eskbanker said:

A_T said:

Leaving aside the probabilities of inflation and investment growth/fall....

Unless the scheme rules don't apply inflationary increases, this will affect the comparison, so it seems pointless to make a calculation from assumptions known to be inaccurate.

Obviously the scale of such increases over the five years between 55 and 60 aren't known at this stage but assuming 0% doesn't seem a sensible approach - even at 2%, that would push the breakeven point back by about five years....

Forward, you mean? The unreduced pension is larger and thus will increase more than the reduced pension, but has to offset again the loss of income for the first 5 years.

A_T said:

Single. No dependents.

If I take my DB at 55 I will get £25,630 per year

If I leave it until 60 which is the start date unless I request otherwise I will get £32,947

 Assuming you are (or are approaching) 55 now then it should be possible to make a reasonable estimate of what inflation may be over the next 5 years (at least more reasonable than assuming 0%). I'm assuming you must be reasonably close to 55 to be asking the question and to have accrued such a large DB pension. Assuming high inflation for the next 5 years (10%, 8%, 6%, 5%, 3%), gradually reducing to the BoE target of 2% by age 60, I model the break even point to be around age 75

Albermarle

A_T said:

eskbanker said:

A_T said:

Leaving aside the probabilities of inflation and investment growth/fall....

Unless the scheme rules don't apply inflationary increases, this will affect the comparison, so it seems pointless to make a calculation from assumptions known to be inaccurate.

Obviously the scale of such increases over the five years between 55 and 60 aren't known at this stage but assuming 0% doesn't seem a sensible approach - even at 2%, that would push the breakeven point back by about five years....

thanks for this.

I don't do spreadsheets - not clever enough. Is there an online tool that will allow me to model outcomes according to different inflation values?

To take a simple approach, you can work out the rate you are losing pension for each year you take it early. It is 4.4%, which is maybe very slightly higher than average . If it was 4%, then usually it works out about even either way, based on average life expectancy.
This assumes the pension has some pretty standard conditions, i.e. inflation linked with a max of 3% to 5% cap; 50% for spouse on your death; refund if you die within 5 years of taking it.

Probably the important issue ( as mentioned by Brie) is if you continue working you would normally build up a bigger pension anyway ( again though depends on the scheme rules) 

eskbanker

NedS said:

eskbanker said:

A_T said:

Leaving aside the probabilities of inflation and investment growth/fall....

Unless the scheme rules don't apply inflationary increases, this will affect the comparison, so it seems pointless to make a calculation from assumptions known to be inaccurate.

Obviously the scale of such increases over the five years between 55 and 60 aren't known at this stage but assuming 0% doesn't seem a sensible approach - even at 2%, that would push the breakeven point back by about five years....

Forward, you mean? The unreduced pension is larger and thus will increase more than the reduced pension, but has to offset again the loss of income for the first 5 years.

Having referred to inaccurate assumptions, I may be doing so myself - I was assuming that both figures are quoted are fixed at the time they're taken, i.e. that they're both already inclusive of assumed inflation up to those dates and that only the 55 figure would benefit from the inflation between 55 and 60.  This is the way one of my pension illustrations works but if both are quoted in today's money and both subject to inflation between 55 and 60 then that is indeed a different calculation!

NedS

eskbanker said:

NedS said:

eskbanker said:

A_T said:

Leaving aside the probabilities of inflation and investment growth/fall....

Unless the scheme rules don't apply inflationary increases, this will affect the comparison, so it seems pointless to make a calculation from assumptions known to be inaccurate.

Obviously the scale of such increases over the five years between 55 and 60 aren't known at this stage but assuming 0% doesn't seem a sensible approach - even at 2%, that would push the breakeven point back by about five years....

Forward, you mean? The unreduced pension is larger and thus will increase more than the reduced pension, but has to offset again the loss of income for the first 5 years.

Having referred to inaccurate assumptions, I may be doing so myself - I was assuming that both figures are quoted are fixed at the time they're taken, i.e. that they're both already inclusive of assumed inflation up to those dates and that only the 55 figure would benefit from the inflation between 55 and 60.  This is the way one of my pension illustrations works but if both are quoted in today's money and both subject to inflation between 55 and 60 then that is indeed a different calculation!

I understand. In my calculations I assumed (maybe incorrectly) that the figure of £32,947 at age 60 is in today's money and  that the figure of £25,630 at aged 55 represents actuarial reduction of just over 22% for taking it early. I assumed that both would increase by uncapped CPI inflation, either in payment now or deferment until age 60.

Secret2ndAccount

Doesn't matter. Nobody knows how long the OP will live. It's a fair offer - neither a gift nor a rip-off. The OP should decide when and why they need the money, taking a 10,000ft whole of life overview. That will determine whether it makes sense to take the money now, or to tuck it away for later.
OP, do you have sufficient pension provision to be comfortable in later life? If so, then maybe you can take the money now. If things look they could be a bit tight in your 60's, then why do you want to start burning the money now? You don't have to tell us the answer, but you do have to know the answer.
Remember that pensions are taxable, so your pension added to your salary could push you into a higher tax bracket; or taking it early could be a way to get at it without paying tax.