Early DB pension calc.

NTFI19081

Hi - can anyone advise me please

I will be getting a DB pension at 60 of 23,000. However, I can take it at 55 for 19,000. ERF's are are included. This appears to me that I will, if I take pension at 55,  receive 19k x 5 = 95k, between 55-60.

If I took it at 60 (23k), it will take me  23.75 years to 'equalise' what I would receive between 55-60 (95k/4k = 23.75 ). I will be 83.75 years old before I have received all benefits earned between 55-60 'back'.

Is this correct, and is it a good deal? Not sure how to work that out!

p00hsticks

By how much does the pension increase annually ?

Albermarle

Normally the reductions for early payment usually mean that if you live to an average age, then it works out about the same if you take it early or not.
A 55 year old man will live on average to around 84.

In fact you have not taken inflation and annual increases into account, so you will break even before them.

Typically a DB pension will be reduced about 4% for each year taken early. Yours is around 3.5%. so quite good.

MX5huggy

It’s not designed to be a good deal or bad deal, it’s designed to be cost neutral. If you go on a life expectancy calculator then it will probably tell you you have a 50% chance of getting to 84 years old. If £19k is enough for you to live on till State Pension kicks in (have you checked it?) I would take it now. 

NTFI19081

Many thanks - it is not enough on its own. But am thinking of taking redundancy and then using pension as a foundation for doing different (less high income) freelance work. Basically, I hang on in the high paying job till 60 or I go now and have more freedom from 55, and may work later a little, perhaps to 65. So many permutations - but the pension offers some baseline for doing something different.

af1963

It is a reasonable enough calculation. Ignores all inflation, which is OK if the pension will increase in line with inflation anyway.  ( If the pension may not keep up with inflation - e.g. capped increases - then it makes the later payments potentially less valuable.)

The 'breakeven point' is broadly in line with life expectancy. On average, people aged 55 will live till their mid 80s, some will live a lot longer.  That's what you'd expect from an actuarial calculation where the scheme administrators need to provide a 'fair' offer.

Whether it works for you will depend on what you expect to need, now and later.

Brie

just check that if you take a pension and work a little this may be enough to take you into a higher tax band.  Especially if not all your redundancy is tax free.

alanyau88

Also if you are taking commutation, double check the commutation factor, especially if you moved to a different DB scheme halfway.  The newer DB pensions seem to have a low commutation factor of 12:1, i.e. sacrificing £1 per £12 tax free lump sum.  It's not worth taking the commutation on the newer DB pension if that is the case.