Advice with retirement decision and drawdown strategy please!

af1963

Your original question about drawing from OH's pension to use her annual tax allowance seems sensible. She doesn't have to spend it. could just withdraw it and transfer it into an ISA where it can be reinvested until needed later, and accessed tax free at that point.  Once her State Pension starts, it will absorb almost all of the tax free allowance, maybe all of it.

Note though that pensions can (currently) be inherited without forming part of  your estate, which can sometime make it worth leaving money in the pension instead so it doesn't count for Inheritance Tax - your total assets as a couple might make this a factor. No guarantee that the law won't change, but that's the current position.

Askfirst

tacpot12 said:

The sensible approach to the DB pension is to leave it until the NPA (especially if there is any Guaranteed Minium Pension associated with it), and draw on your savings and SIPPs until then. 

I have never seen this explained, although I've seen reasons why you shouldn't cash out of a DB scheme. My DB pension provider won't give an estimate for amount payable at normal retirement date, let alone NPA which is two years later. So there is a reduction for taking it early, which would be offset by, well, taking it early! 

What might be the reasons for staying until the end?

Pat38493

Askfirst said:

tacpot12 said:

The sensible approach to the DB pension is to leave it until the NPA (especially if there is any Guaranteed Minium Pension associated with it), and draw on your savings and SIPPs until then. 

I have never seen this explained, although I've seen reasons why you shouldn't cash out of a DB scheme. My DB pension provider won't give an estimate for amount payable at normal retirement date, let alone NPA which is two years later. So there is a reduction for taking it early, which would be offset by, well, taking it early! 

What might be the reasons for staying until the end?

I'm not sure I agree with that statement.  I guess the usual justification for that approach is to make sure that you have the maximum possible guaranteed income in later retirement so that no market changes can impact you, and protect against the "risk" that you will live to be 120.

However, there are also reasons the other side - if you are retiring early and you are trying to "bridge the gap" to your DB and State pensions with a DC pot and/or savings, putting your DB pension into payment earlier may well result in a better long term outcome, according to historical modelling, and also may allow you to retire earlier without having as much risk of running out of money before your NRA.

You will be making smaller DC withdrawals each year so you are less exposed to sequencing risk from a large crash in the early years (although not fully protected of course).

This has to be looked at on an individual case by case basis, and will depend for example on how much reduction you have to take for early retirement factors.

Personally I am planning to put my DB in payment earlier because the modelling I've done suggests a better long term outcome.

Askfirst

Thanks Pat, that's some solid reasoning for not being too worried about the actuarial reduction when making plans. Unfortunately my deferred pension administrators are pretty opaque with their figures. 

Until I was made redundant, I was considering taking the DB early and saving a bit more than I was doing into my DC pot. But finding it difficult to get another similar job, I am having to do some future income modelling with such assets  as the wife and I have put aside to date.

For what it's worth, the GUIIDE model suggests burning cash first rather than taking the DB annuity before normal retirement age of 65.  

Pat38493

Askfirst said:

Thanks Pat, that's some solid reasoning for not being too worried about the actuarial reduction when making plans. Unfortunately my deferred pension administrators are pretty opaque with their figures. 

Until I was made redundant, I was considering taking the DB early and saving a bit more than I was doing into my DC pot. But finding it difficult to get another similar job, I am having to do some future income modelling with such assets  as the wife and I have put aside to date.

For what it's worth, the GUIIDE model suggests burning cash first rather than taking the DB annuity before normal retirement age of 65.  

As far as I understand, it's the duty of trustees and pension administrators to be fair to all members - therefore all other things equal, they are not supposed to penalise you unfairly for taking the pension early.  The theory is that the average person should get the same amount of benefit over their remaining lifetime regardless when they take the pension.

I am not sure if this is also the case with unfunded public sector schemes, and I guess different administrators may come to different conclusions about what is the appropriate actuarial reduction.

handful

Askfirst said:

Thanks Pat, that's some solid reasoning for not being too worried about the actuarial reduction when making plans. Unfortunately my deferred pension administrators are pretty opaque with their figures. 

Until I was made redundant, I was considering taking the DB early and saving a bit more than I was doing into my DC pot. But finding it difficult to get another similar job, I am having to do some future income modelling with such assets  as the wife and I have put aside to date.

For what it's worth, the GUIIDE model suggests burning cash first rather than taking the DB annuity before normal retirement age of 65.  

Another factor to consider when calculating whether to take DB early is the inflation factor. On mine, my relatively small DB pension has full inflation protection up to the point of drawing from it and then it's capped at 5%. So for example if I had started drawing 2 years ago I would only have seen a 5% increase for last year as opposed to a 10% and then that increase compounds over future years. With falling inflation I guess not such an issue. I have more or less decided I am going to wait until NRA before taking mine.

Moonwolf

Askfirst said:

Thanks Pat, that's some solid reasoning for not being too worried about the actuarial reduction when making plans. Unfortunately my deferred pension administrators are pretty opaque with their figures. 

Until I was made redundant, I was considering taking the DB early and saving a bit more than I was doing into my DC pot. But finding it difficult to get another similar job, I am having to do some future income modelling with such assets  as the wife and I have put aside to date.

For what it's worth, the GUIIDE model suggests burning cash first rather than taking the DB annuity before normal retirement age of 65.  

And of course, as Pat says it is very individual.  I'm thinking about actuarial reduction for the biggest one of mine but I'm also aware that all my DB plus state pensions add up to a figure I can live on, it just doesn't include the big holidays I want.

Taking the reduction would mean that if I did run out of DC I might have to budget, if I don't take the reduction I am more likely to run out of DC but I won't have to budget as hard (except the holidays).

This is a very personal position, for me the difference between about £31k a year of guaranteed pension and about £35k a year.  My decision might be different if the proportions of DC and DB were different.

michaels

I am planning to bridge (both DB pension and state pension) using a 'index linked gilts' pension ladder purchased from my DC pot although I have also modelled taking DB early and using whole DC pot taken at an SWR, it doesn't make much odds to 'safe' annual expenditure but I prefer the certainty of the former.