Taking DB Pension Early

xylophone

I should have added that I’ve checked my NI contributions and I’m fully paid up. 

What exactly does your state pension forecast say?

Sunsh1ne54

NedS said:

Sunsh1ne54 said:

NedS said:

Actuarial reduction is designed to be fair, both to you and to the scheme. You are receiving a smaller pension for a longer period. Assuming you live to the average age, you would receive the same amount of money from the pension overall. Die young, and you would have likely benefited having taken the pension earlier, live longer and you will lose out slightly by having a smaller pension for longer.

Have you considered any alternatives? Do you have any savings or other pensions you could use to fund that two year period rather than reducing an index-linked (gold plated) CS pension.

What CS pension is it? Classic, Alpha?

Thanks NedS, it’s the Classic pension, deferred. 

Because it's deferred, is it being revalued by CPI each year?

NedS said:

Sunsh1ne54 said: 

NedS said:

Actuarial reduction is designed to be fair, both to you and to the scheme. You are receiving a smaller pension for a longer period. Assuming you live to the average age, you would receive the same amount of money from the pension overall. Die young, and you would have likely benefited having taken the pension earlier, live longer and you will lose out slightly by having a smaller pension for longer.

Have you considered any alternatives? Do you have any savings or other pensions you could use to fund that two year period rather than reducing an index-linked (gold plated) CS pension.

What CS pension is it? Classic, Alpha?

Thanks NedS, it’s the Classic pension, deferred. 

Because it's deferred, is it being revalued by CPI each year?

It is, yes

Sunsh1ne54

Somebody said:

Your personal circumstances will impact on the answer.

Are you still working? Do you need the extra income to survive?  If still working and you don’t need the extra money then obviously no to taking it early. 

Do you have an immediate need to use the tax free lump sum?

I’m still working but planning to put early pension payments into DC pot whilst I don’t need them. The lump sum not required. My numbers looked good as I plan to take in one more year anyway, so thought by taking it two years early and still working I could boost the savings before retiring…

NedS

Sunsh1ne54 said:

Somebody said:

Your personal circumstances will impact on the answer.

Are you still working? Do you need the extra income to survive?  If still working and you don’t need the extra money then obviously no to taking it early. 

Do you have an immediate need to use the tax free lump sum?

I’m still working but planning to put early pension payments into DC pot whilst I don’t need them. The lump sum not required. My numbers looked good as I plan to take in one more year anyway, so thought by taking it two years early and still working I could boost the savings before retiring…

So you are essentially converting two years worth of index-linked (gold plated) DB pension into DC pension. Do you have way more fixed income than you need? Is there a specific rational for doing this? In hindsight, it may be an inspired decision as the next two years could be a golden buying opportunity if markets plunge further and stay low, but who knows.

Sunsh1ne54

NedS said:

Sunsh1ne54 said: I plan to give up work by next December latest, probably before that, so I had looked at taking my Classic pension early. It then occurred to me that if I took it and worked a few months next year I could invest the Civil Service monthly payments into my DC pot which is fairly small to cover the two year early pension payments difference for some years (it’s only roughly £80 per month less if I take it early)  - here to see what others thoughts are on this… 

Somebody said:

Your personal circumstances will impact on the answer.

Are you still working? Do you need the extra income to survive?  If still working and you don’t need the extra money then obviously no to taking it early. 

Do you have an immediate need to use the tax free lump sum?

I’m still working but planning to put early pension payments into DC pot whilst I don’t need them. The lump sum not required. My numbers looked good as I plan to take in one more year anyway, so thought by taking it two years early and still working I could boost the savings before retiring…

So you are essentially converting two years worth of index-linked (gold plated) DB pension into DC pension. Do you have way more fixed income than you need? Is there a specific rational for doing this? In hindsight, it may be an inspired decision as the next two years could be a golden buying opportunity if markets plunge further and stay low, but who knows.

I'm hoping to retire by July 2023, latest December, so am thinking of taking the Civil Service pension from January 2023 and putting the monthly payments into my DC pension pot (from January to July) would help towards topping up the slightly lower payments of Civil Service pension than if I take it age 59. It will also avoid paying too much tax on it.  Whatever happens I would certainly be taking it at least a year to 18 months early, so the idea of topping up the DC pot is purely to help from July onwards... hope this makes sense?

Sunsh1ne54

Dazed_and_C0nfused said:

What is the percentage reduction for getting your pension for an extra 2 years?

Will you be paying tax on it?  If so 20%?  Or 40%?  Or a mix of 20% and 40%?

Have you checked your State Pension forecast and understood the possible impact on reaching the standard new State Pension. 

You must read your forecast in full, the headline figure can be misleading if you won't accrue all the years to your normal State Pension age, particularly when you have contracted out years.

I am awaiting a quote from My CSP, but I am working on 10% reduction.  I would be paying tax on the Civil Service early monthly payments as I'm still working, hence my plan to put it into the DC pot to avoid higher tax on a small portion of it, and to build up additional funds from January to July (possibly December) to cover the loss over quite a few years from mid 2023 onwards.  As I'll be retiring early, it made sense to me to take the pot from 2 years rather than 18 months to be able to save 6 months worth of payments...

Sunsh1ne54

xylophone said:

I should have added that I’ve checked my NI contributions and I’m fully paid up. 

What exactly does your state pension forecast say?

It says I need to work one more year to get the full amount I'm entitled to, just over £185 per week.  I plan to work til July 2023 so that would cover the NI.

Sunsh1ne54

Thanks for all the replies, much appreciated. A further question, does anyone know if there would be a drawback to paying the value of the monthly Classic pension monthly payments out of my current working salary into my works DC pension pot for 7 months from January to July, to more than cover taking the Civil Service pension 2 years early. After 7 months (July) I plan to retire. The reduced value of CS pension would be around £13000 a year and I currently earn £40k a year. I believe this would keep tax in the 20% bracket. I think then I could retire at 58 and a half with more money saved than if I waited to take full CS pension at 60 (approximately £14300)…