When to draw pension

Columbus27

Just turned 60. I work full time but want to reduce hours soon and work part time for a couple of years before retiring. 

I have a decent pension from a previous career I can now draw.  The idea is that this will top up my future part time salary. However going part time is going to take a while due to work issues.

should I just draw that pension anyway?  It’s a decent lump sum and I can save the monthly amount for a while. Because I’m not paying into it it can’t go up really so little to be gained from leaving it. A financial adviser suggested I get the lump sum and use to reduce some debts I have and invest rest in a short term isa ready for when I actually retire.

i realise I will pay tax on that monthly pension payment if I do this but I am not sure there is much to be gained by leaving the pension sitting there?

Any advice gratefully received. Thank you.

Dazed_and_C0nfused

Columbus27 said:

Just turned 60. I work full time but want to reduce hours soon and work part time for a couple of years before retiring. 

I have a decent pension from a previous career I can now draw.  The idea is that this will top up my future part time salary. However going part time is going to take a while due to work issues.

should I just draw that pension anyway?  It’s a decent lump sum and I can save the monthly amount for a while. Because I’m not paying into it it can’t go up really so little to be gained from leaving it. A financial adviser suggested I get the lump sum and use to reduce some debts I have and invest rest in a short term isa ready for when I actually retire.

i realise I will pay tax on that monthly pension payment if I do this but I am not sure there is much to be gained by leaving the pension sitting there?

Any advice gratefully received. Thank you.

As you haven't told us whether it's a defined benefit (pension determined by the scheme rules) or defined contribution pension (a pot of money) it's difficult for anyone to make any useful comment.

If it's a DB pension you may find not taking it now means you lose the money i.e. it is only paid from when you claim it with no payment for any period you chose not to claim for.

If it's a DC pension then taking funds out when you don't need them just to put into a different tax wrapper doesn't seem all that logical.  You would also trigger MPAA by taking taxable money out of a DC pension and this forever restricts what you can add into DC pensions.

Also, you may want to reconsider taking advice from a financial advisor.  If you think advice is appropriately the sensible option is an independent financial advisor.

Columbus27

I didn’t understand any of that! 

It’s a pension I paid into when I worked for the council. So LGPS.

What is MPAA?

Dazed_and_C0nfused

Columbus27 said:

I didn’t understand any of that! 

It’s a pension I paid into when I worked for the council. So LGPS.

What is MPAA?

LGPS is a defined benefit pension i.e. you are entitled to a pension based on the scheme rules, how much you paid in isn't important.

MPAA is money purchase annual allowance and limits future DC contributions to £10,000.  But if you just start the normal LGPS (DB) pension that won't be triggered.

Have you checked with LGPS what would happen if you didn't start the pension on the normal pension age for that scheme?

kempiejon

Columbus27 said:

I didn’t understand any of that! 

It’s a pension I paid into when I worked for the council. So LGPS.

What is MPAA?

I have a LGPS - that is a defined benefit pensions. If I access mine before normal pensions age for me 68 the monthly payment would be reduced. Leaving it it should increase by inflation.
MPAA - Money Purchase Annual Allowance.
Some reading here
https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits/pension-tax-limits#:~:text=The MPAA is a reduction,£4,000 to £10,000.

Columbus27

Thankyou. Yes I realise it increases with inflation but since I don’t plan to work until I’m 68 I need to draw it now. The difference between getting it now and at 68 doesn’t seem significant. I am not paying into it now either.

i find it all very stressful to consider! Yes I will seek advice.

Flugelhorn

what is the normal retirement age for that pension? is it 60 or 68? 

cfw1994

LGPS is the same as one I have - should be a DB - defined benefit - scheme.
I have similar.  

To my knowledge, you do not gain any more by deferring it.  You could contact the administrator.
So in that case, you might as well take it, even though it might mean you may pay more tax - no idea if you are (or would then be) in a higher rate tax bracket.

MPAA is the Money Purchase Annual Allowance.  Read more here.  However, taking a DB pension will not “trigger” the MPAA.
Perhaps contact (email?) your LGPS admin and ask:

1. Is my pension a Defined Benefit one? (I think it is)
2. If I do not take it at 60, will I get an increased sum in the future, above any normal annual increase? (I think the answer is no)
3. If I take it at 60, will it trigger the MPAA? (I think the answer is no)
4. What are my options now I am 60?
   

Did they contact you before you turned 60?   I am hoping/expecting mine to, but perhaps I will need to chase them 🤷‍♂️

If it is like mine, you will probably have a choice to take more as a lump sum up front (with a lower annual pension).  

My personal choice is to keep the lump sump to a minimum, to take more as pension, but if you are continuing to work (& might pay more tax on the annual amount, you may prefer a high tax-free lump sum up front and a lower pension.  That is perhaps where an advisor could help (but of course will take £££ - feel free to ask more here for thoughts/guidance).

Columbus27

Thanks. That’s helpful. The initial financial advice i had suggested I take the max tax free lump sum now as I’m still working. 

I will seek them out again and speak to pension people. 

Dazed_and_C0nfused

Columbus27 said:

Thanks. That’s helpful. The initial financial advice i had suggested I take the max tax free lump sum now as I’m still working. 

I will seek them out again and speak to pension people. 

If it's from LGPS that tends to be awful from a longer term financial view.

You give up say £1,000 of (taxable) pension for the rest of your life in return for a one off payment of £12,000 (which is tax free).  A commutation rate of 12:1.

But wth LGPS that £1,000 is inflation proofed so in year two it might say £1,040 you have given away.  And so on each year.  For maybe 40 years.

That extra lump sum can prove very costly in the long run.

Columbus27

Well I doubt I will live to 100!

if I take the larger monthly payment now I will just pay more tax though. At least the lump sum can be invested. That’s my thinking anyway. 

Plus I can pay off my remaining mortgage now.