Take pension before I stop work or not

59598_

I have a Cadent defined pension which is based on me retiring at 65 however I now intend to continue working beyond 65 should I take the 25% tax free lump and invest it and accept the reduced pension payment will be taxed @ 40% or leave it until I'm ready to retire? 

dunstonh

Cadent defined pension

I believe you mean defined benefit pension going by google.  (not defined contribution - i.e. both styles have defined in their name).  

 should I take the 25% tax free lump and invest it and accept the reduced pension payment will be taxed @ 40% or leave it until I'm ready to retire? 

There is no 25% tax free cash with the defined benefit pension.    Defined benefit schemes get pension commencement lump sum (PCLS).  This is because there is no pot of money to apply 25% to.  It uses a defined calculation instead.

Until you do the calculations its not possible to say but a quick and dirty answer would be that it is unlikely to be a good option.  Paying 40% tax unnecessarily on the income just to put the PCLS in a bank account doesn't seem a good idea in most cases.

xylophone

Have you obtained a state pension forecast to help with retirement planning?

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

Are you still working for Cadent so are an active member of the scheme?

Or is this a deferred pension and you are working elsewhere?

Keep_pedalling

If you intend to keep working, why would you take the pension early?

Pat38493

dunstonh said:

Cadent defined pension

I believe you mean defined benefit pension going by google.  (not defined contribution - i.e. both styles have defined in their name).  

 should I take the 25% tax free lump and invest it and accept the reduced pension payment will be taxed @ 40% or leave it until I'm ready to retire? 

There is no 25% tax free cash with the defined benefit pension.    Defined benefit schemes get pension commencement lump sum (PCLS).  This is because there is no pot of money to apply 25% to.  It uses a defined calculation instead.

Until you do the calculations its not possible to say but a quick and dirty answer would be that it is unlikely to be a good option.  Paying 40% tax unnecessarily on the income just to put the PCLS in a bank account doesn't seem a good idea in most cases.

It might make sense if you also paid the DB pension payment amounts back into the pension and effectively moved each payment into your DC pension.  However this might cause you some theoretical issues with pension recycling guidelines, but for sure you could do it if you didn’t take the PCLS.  Example - if you want to start working part time, maybe you could put your DB pension into payment in order to keep putting the same amount into the pension as before.

Albermarle

59598_ said:

I have a Cadent defined pension which is based on me retiring at 65 however I now intend to continue working beyond 65 should I take the 25% tax free lump and invest it and accept the reduced pension payment will be taxed @ 40% or leave it until I'm ready to retire? 

Some defined benefit schemes will increase your pension each year you if defer it beyond the Normal Retirement Age. So this compensates for not taking the pension at the Normal age.
However some do not, so by deferring it/not taking it you are basically throwing a years pension away.

A good look at your schemes rules seems like a good idea, as they are all a bit different.

eastcorkram

Keep_pedalling said:

If you intend to keep working, why would you take the pension early?

If they're taking it at 65, they're not taking it early are they? 
Why would you not take it? It might increase while deferred, but it'd take a long time to make up what you'd given up surely. 

player1_2

dunstonh said

There is no 25% tax free cash with the defined benefit pension.    Defined benefit schemes get pension commencement lump sum (PCLS).  This is because there is no pot of money to apply 25% to.  It uses a defined calculation instead.

But given the PCLS is tax free, does it count towards the overall TFLS cap ? ( 25% of LTA figure )

Albermarle

eastcorkram said:

Keep_pedalling said:

If you intend to keep working, why would you take the pension early?

If they're taking it at 65, they're not taking it early are they? 
Why would you not take it? It might increase while deferred, but it'd take a long time to make up what you'd given up surely. 

With some DB pensions, if you defer them then the annual pension goes up to take account of them being paid one year less. In theory you should catch up when you reach the age of average longevity ( around 84 for a 65 year old) .
However some schemes do not increase so you definitely lose out by deferring.

Qyburn

Pat38493 said:

It might make sense if you also paid the DB pension payment amounts back into the pension and effectively moved each payment into your DC pension.  However this might cause you some theoretical issues with pension recycling guidelines, 

Would it count as recycling if his increased pension contributions were funded solely by income from the DB pension, even though a tax free sum was received as well?

Doctor_Who

player1_2 said:

dunstonh said

There is no 25% tax free cash with the defined benefit pension.    Defined benefit schemes get pension commencement lump sum (PCLS).  This is because there is no pot of money to apply 25% to.  It uses a defined calculation instead.

But given the PCLS is tax free, does it count towards the overall TFLS cap ? ( 25% of LTA figure )

I have both DB and DC pensions. My understanding is that the PCLS from a DB pension counts towards the tax free lump sum limit just as much as the 25% TFC from a DC pension.