Struggling to find the best pension income strategy

Ever_Hopeful

Hi,

Newbie post.

Looking for a sanity check on the most appropriate pension income strategy to follow for my wife and myself in particular in the period through to State Pension age.   Overall, I believe we are in a reasonably fortunate position.

I have probably spent far too long reading forum posts and replies and numerous other articles and videos on online.  I am somewhat struggling to make a final decision on the best way forward for pension income.  

I have very recently finished up working.  My work was demanding and very stressful and my general work life balance was extremely poor.  Now feeling so much better physically and mentally.  Looking forward to active and rewarding retirement.

Summary Facts

Mortgage paid and no debts

I have a deferred DB Pension which is due in ~2 years

Recent quote for taking the DB Pension 2 years early :- ~£18.1K pa (~9% early retirement factor applies) or ~ £13.3K with a PCLS of ~£88K

DC pots :- ~£460K, ISA Savings :- ~ £50K  

My wife does not have any pension savings but is entitled to a full state pension

Options for pension income :-

#1 Take DB pension early without PCLS, Use some of DC Pots with flexi access drawdown + some of ISA savings

#2  Don’t take DB pension early, Use some of DC Pots with flexi access drawdown + some of ISA savings

#3 Take DB pension early with PCLS, Leave DC Pots untouched, Maximise further ISA savings for myself and my wife.  Open SIPP for my wife

#4 ??

Initially I was fairly sure that Option #1 was the way to proceed but now thinking Option #3 may be better allowing the DC Pots to continue to grow for longer and allow an increase in ISA savings

Thanks in advance for any feedback / comments / suggestions.

xylophone

Your wife has no relevant earnings at all?

Is she sure that she has no pension provision outside the state pension?

How old are you and your wife?

Presumably you have a good idea of how much income you need between you to maintain your usual standard of living?

How does your deferred DB pension increase 

(a) in deferment

(b) in payment?

Do you have a Guaranteed Minimum Pension within the DB pension? (Check your statement of deferred benefits on leaving service.)

tacpot12

It's normally best not to take the DB pensions early as they will have some inflation protection built into them, and you want to protect as much of your retirement income as possible. 

Opening a SIPP for your wife is pretty much a no-brainer as its free money from the government. 

Ever_Hopeful

xylophone said:

Your wife has no relevant earnings at all?

Is she sure that she has no pension provision outside the state pension?

How old are you and your wife?

Presumably you have a good idea of how much income you need between you to maintain your usual standard of living?

How does your deferred DB pension increase 

(a) in deferment

(b) in payment?

Do you have a Guaranteed Minimum Pension within the DB pension? (Check your statement of deferred benefits on leaving service.)

Many thanks for the quick reply.
Yes unfortunately no pension provision for my wife
I will be 63 in July, My wife is 64.
Trying to achieve an annual income of ~£33K
Info on DB pension increases :- "pension in payment will receive increases in line with RPI up to 5% until you reach GMP age. At that point your pension will be split out and you will receive Nil increases on Pre 88 GMP, CPI up to 3% on Post 88 GMP and RPI up to 5% on all excess pension"

Does Option #3 have more merit ?

OldScientist

Once you both reach SP age, you will have (in today's money) £23k plus either £18.1k or £13.3k, so (ignoring any effects of inflation on your DB pension) an income stream above your target of £33k.

If you wait to take the DB pension, you will receive £19.7k or £14.5k instead (an extra £1.2k to £1.6k per year) if I've applied 9% correctly.

In order to support 3 to 4 years with zero, one, or two state pensions and  a requirement for £33k spending

Without taking the DB early you need (assuming 0% real growth - possibly achievable with fixed rate cash accounts over the next 3-4 years),

Year 1 £33k from savings/DC pot
Year 2 £33k (DC)
Year 3 £19k (DB) + £11.5k (SP) + £2.5k (DC)
Year 4 £19k (DB) + £23k (SP)
Total £68.5k from DC pot.

Taking the DB early your would need
Year 1 £18k (DB) + £15k (DC)
Year 2 £18k (DB) + £15k (DC)
Year 3 £18k (DB) + £11.5k (SP) + £3.5k (DC)
Year 4 £18k (DB) + £23k (SP)
Total £33.5k from DC pot.

Note I may have some of the timings wrong here - it is probably worth doing a spreadsheet/piece of paper on a monthly basis with 3 columns (income from DB, DC, and SP). I have also ignored tax.

If I have got the calculations near enough, then the question is then is an extra £1k income in DB worth £35k (i.e., 68.5k minus 33.5k) from the DC pot?

xylophone

Even though your wife has no relevant earnings,  up to age 75 she can still contribute up to £2880 (net) per annum to a personal pension and receive up to £720 per annum in tax relief.

Your DB pension will be revaluing in deferment. Do you have your statement of deferred benefits at DOL?

What exactly does it show as to pre 88 GMP/post 88 GMP/excess?

Do you know how it is revaluing?

Is the GMP   revaluing at Fixed Rate or full rate?

https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

With regard to taking benefits from your DC pension (s), have you obtained an interview with Pension Wise?

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

You could consider crystallising just as much as you need of your DC pension each year up the drawing of your/your wife's state pension

and then adjusting for receipt of the state pension.

Have you checked your own state pension forecast?

What exactly does it say?

kipsterno1

Does taking your DB pension early have any effect on the the value of any spouce/survivers entitlement? If so that could have a big impact, if the worsted was to happen, given your wife currently has no other pension income.

Moonwolf

I asked this a few months ago https://forums.moneysavingexpert.com/discussion/6489313/choices-choices#latest

I'm pretty sure I have decided not to take my DB pension early with an actuarial reduction but it comes down to this, is guaranteed income better than probably being better off.

It looks like I will be better off in most situations if I do take the reduction and allow my DC to grow.  However in the worst case and a big stock market crash, we would still have a comfortable life (just fewer holidays) on the DB pensions alone. 

For me it is better to have enough at worst than be rich in the graveyard.

alanyau88

You would reach your target of £33k no matter what happens in 3 years.

If I were you I would take option:

#4 Take DB pension early with PCLS, Leave DC Pots untouched, open SIPP for yourself or wife and can possibly contribute up to last 4 years earned income.  A £88k SIPP Pot invested 10 years before age 75 will hopefully increase to approximately £176,000 if average 7% returns (inflation not deducted).

Any left over that you can't receive tax relief for then take option:

#3 Take DB pension early with PCLS, Leave DC Pots untouched, Maximise further ISA savings for myself and my wife. Open SIPP for yourself or wife depending on who can contribute most for tax relief.

Ever_Hopeful

xylophone said:

Even though your wife has no relevant earnings,  up to age 75 she can still contribute up to £2880 (net) per annum to a personal pension and receive up to £720 per annum in tax relief.

Your DB pension will be revaluing in deferment. Do you have your statement of deferred benefits at DOL?

What exactly does it show as to pre 88 GMP/post 88 GMP/excess?

Do you know how it is revaluing?

Is the GMP   revaluing at Fixed Rate or full rate?



With regard to taking benefits from your DC pension (s), have you obtained an interview with Pension Wise?



You could consider crystallising just as much as you need of your DC pension each year up the drawing of your/your wife's state pension

and then adjusting for receipt of the state pension.

Have you checked your own state pension forecast?

What exactly does it say?

Thanks again for the feedback
Pension increases in deferment :- the latest DB pension statement reads "Any GMP elements of your pension are revalued in deferment in line with Fixed Rate Revaluation. The rate is currently 4.5% per annum. ..Other pension elements are re-valued annually in deferment in line with statutory orders up to a maximum of 5% from the date you left the plan"
I recently had a Pension wise interview which I found quite helpful.
I have previously checked state pension entitlement online for my wife and myself. I plan to re-check again.
Does accessing the PCLS make any sense ?

Ever_Hopeful

kipsterno1 said:

Does taking your DB pension early have any effect on the the value of any spouce/survivers entitlement? If so that could have a big impact, if the worsted was to happen, given your wife currently has no other pension income.

Thanks for the feedback
Pension arrangements below apply :-
"Your spouse, civil partner or dependants may receive a pension for their lifetime of 50% of what your pension would have been at the date of your death if you had not taken any tax-free cash. In addition, if you die within five years of your pension commencing, a lump sum equal to the unpaid balance (ignoring future increases), which would have been paid had you survived for the five years is payable."