Questions about taking a lump sum and consolidating pensions

Qyburn

QrizB said:

State pension age is currently 67 and due to rise to 68.

Currently 66

J_forest

xylophone said:

This person lives with his wife who doesn't have full station pension seem to live in a pretty decent life. They don't travel.

Off the track?

Does the relative have both Defined Benefit and Defined Contribution pensions?

What is Defined Benefit and Defined Contribution pension? I have no idea  

 I don't think he knows either ... Anyway I will ask...

Dazed_and_C0nfused

J_forest said:

xylophone said:

This person lives with his wife who doesn't have full station pension seem to live in a pretty decent life. They don't travel.

Off the track?

Does the relative have both Defined Benefit and Defined Contribution pensions?

What is Defined Benefit and Defined Contribution pension? I have no idea  

 I don't think he knows either ... Anyway I will ask...

Defined benefit is where you get a pension based on the scheme rules, often known as final salary or CARE (Career Averaged Revalued Earnings) schemes.

For example for each year of service with a CARE scheme you might accrue 2% of your salary as a pension.  Which gets revalued by an inflation factor each year and is then paid for life from the schemes normal pension age.  

Not unique to but far more common with public sector employers these days.

Defined contribution is where you build up a pot of money to spend as you wish during your retirement.  Spend it all on a Ferrari as soon as you hit 55 (or 57 in the future) or take a sensible amount each year.  You can also buy an annuity with your DC fund.

Three key factors when building up DC pension fund are,

1.  The amount contributed
2.  The investment choice you make within the pension fund wrapper
3.  Fund charges

J_forest

xylophone said:

This person lives with his wife who doesn't have full station pension seem to live in a pretty decent life. They don't travel.

Off the track?

Does the relative have both Defined Benefit and Defined Contribution pensions?

The main pension is DB, the other two small pots are very small, might be DC?

xylophone

Is normal retirement age for the DB pension 60? 65? Something else?

At what age is he considering taking it? How old is he now?

If he is taking it before Scheme NRA, what would the early payment reduction be?

If he  took the DB, would he also take only the Pension Commencement Lump Sum from the DC pensions at around the same time?

What is the current value of the DC pensions?

Has he obtained a state pension forecast?

What is shown at estimate to 5/4/23?

J_forest

He will be 60 this summer.

I don't have the details to answer your questions. According to the documents from different providers, his normal retirement age is 60. He can defer them to 65 to get better rates.

He is currently self-employed and he wants a stable income. His plan is to take 25% from each pension to pay off his car loans, new kitchen etc, and take the pensions every month. Meanwhile he will keep working. When he reaches state pension age, he will rethink what to do.

Is it a wishful idea? The Pension Wise appointment is in April time.

Thank you, Xylophone.

xylophone

https://techzone.abrdn.com/public/pensions/Tech-guide-tax-free-cash

If NRA for his DB pension is 60 then he will be able to bring the pension into payment at age 60 without any early repayment reduction.

Some DB pensions offer what are called "late retirement  increases", an enhancement to the pension if it is not taken at NRA.

The enhancement is based on the "late retirement factor" specified in the scheme rules.

It appears that your friend wishes to take his pension at NRA.

It seems to be the case that his scheme allows "commutation" of part of his pension - that is to say he  foregoes part of the annual

 pension in return for a tax free pension commencement lump sum. How this is calculated and applied will depend on scheme rules.


If he wishes he can choose to take benefits at the same time from his small DC pensions. There are various options for doing this - he

can book an appointment with Pension Wise for guidance.


https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise/book-a-free-pension-wise-appointment