Drawing private pension

rizzo_2

With his permission, I’ve had a conversation with my husband’s pension provider.  He paid into the fund for only three years in the early eighties and they calculate the pension on the proviso that members will retire at 65. I have told them he’s retiring at 66 (state pension age).  If he draws this pension when he’s 65 it will be taxable as he’s still working. Now we’re  thinking we can’t see the advantage of waiting until until he’s 66 to draw it so we are wondering if he should draw it when he’s 65 rather than wait?
TIA for any replies.

dunstonh

You mention "provider" which suggests it is a money purchase/defined contribution scheme.  If so, the scheme age is only really for the annual statements and can be changed/deferred easily.   

You mention it was early 80s.  So, there is a good chance that guaranteed annuity rates could exist on this plan.   If there is, then many of these increase on birthday.  So, you get a lower rate at 65 compared to 66

When he gets his state pension, its unlikely he will use all of the personal allowance up.     So, there will be excess tax free allowance available which wont be the case whilst working.

lisyloo

The main benefit I see is less tax.
If he's working then he'll have to pay 20% income tax on anything he gets from his pension.
If he takes it at 66 then he will pay 0% on some of it.

If you think he'll get an extra years money, then no he won't.
There is a finite amount of money to spread over his retirement, so broadly speaking he'll get slightly less per year if he draws it at 65.
The same goes for state pension. You can defer and get more per year for fewer years.
There is no free extra year here.
There will be a cost to take it earlier rather than later.

Albermarle

Can you clarify if it is a DB ( Defined Benefit) pension or a DC ( Defined Contribution) pension.
Pension basics | Help with pension basics | MoneyHelper

LHW99

If he takes it, could he pay the equivalent amount into a SIPP (or his current work pension)? Paid into a SIPP he would get refunded an equivalent amount to the tax he pays on the pension income.

lisyloo

LHW99 said:

If he takes it, could he pay the equivalent amount into a SIPP (or his current work pension)? Paid into a SIPP he would get refunded an equivalent amount to the tax he pays on the pension income.

sorry, help me out here. What is the point of that? (I may be missing something).

DairyQueen

lisyloo said:

LHW99 said:

If he takes it, could he pay the equivalent amount into a SIPP (or his current work pension)? Paid into a SIPP he would get refunded an equivalent amount to the tax he pays on the pension income.

sorry, help me out here. What is the point of that? (I may be missing something).

Could make sense if this is a DB scheme with little/zero late retirement increase. My sibling is a member of such a scheme. Inflation-only increases if deferred so for anyone still working it pays to put the pension into payment and re-route into a SIPP/DC to claim the tax back.