Asked to purchase an immediate annuity at age 55 but option 1 or option 2 ? Advise needed please !
I recently asked my employer for an early retirement aged 55 quote for my pension. I am 53 years old and looking to retire at 55. Note - Checking the HMRC website, I have paid enough years for a full pension at 67 or 68 (if government bring it in early)
The company came back with 2 quotes:
Option 1 – reduced DB pension £8774 per year (or £731 per month). I also have a DC fund £450,000. They say that 25% must be taken as a Pension Commencement Lump Sum and 75% taken as an IMMEDIATE ANNUITY. Lump Sum therefore would be £112,000 and the 75% DC pension residue would be £337,000 approx.
I have checked online and can get a joint life annuity guaranteed 30 years, at £1390 per month on this DC residue for this option 1. (no increases per year)
Summary – 731 + 1390 = £2121 per month before tax (aged 55 to 68) plus £112,000 lump sum. At 68, the state pension would add about £1000 per month taking it to £3100pm.
Option 2 – more reduced DB pension £7602 per year (or £633 per month). The maximum Pension Commencement Lump Sum offered is £157,000 and a £319,000 DC pension residue to be taken as an IMMEDIATE ANNUITY.
I have checked online and at age 55, can get a joint life annuity guaranteed 30 years, £1320 per month for the residue on this option 2. (again no increase)
Summary – 633 + 1350 = £1983 per month before tax (aged 55 to 68) plus £157,000 lump sum. At 68, the state pension would add about £1000 per month taking it to £3000pm.
I don’t have any debts and kids are all grown up. I normally
spend about £1900 per month so both options meet that. I did ask my employer about drawdown pensions
but the company pension rules for my specific pension does not permit that. I will come back on drawdowns in a separate thread.
I have a couple of questions:
Which do you think is the best of the above 2 options ?
Can anybody advise on what to do with the lump sum in option 1 or 2 over the 13 years aged 55 to 68. 13 years is 156 months and 157K is like £1000 per month paid to yourself for 13 years (or £700 for option1). Reading around, am I permitted to buy a 13 year fixed term annuity taking me from 55 to 68 paying me monthly amount before the state pension kicks in? Is that the best way rather than just sitting in the bank paying yourself £1000 or £700 ?
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