Timing of drawing 'closed' DB scheme

Cobbler_tone

This could be a really stupid question but all around timing, not necessarily need.
I have a closed DB scheme and active DC scheme with the same employer. I'm 55.

I have modelled the various years to start taking it from now until 60. I intend to be out by 58.
It surprised me the amount of time it took before you became better off (taking it later), modelling both the full pension (with growth) and reduced pension with tax free amount. 

I appreciate the biggies of restricting future contributions to the DC scheme and tax liabilities but other than that I can't see many disadvantages of accessing it ASAP, unless of course you intend living until you are 100. I think my ultimate decision will be whether to leave the DB whilst I spend the DC or visa versa.

Here are the rules of the DB, built from 1995 - 2021, it closed to new members in 2010.

https://ibb.co/0JWZ7GN

Sarahspangles

Cobbler_tone said:

This could be a really stupid question but all around timing, not necessarily need.
I have a closed DB scheme and active DC scheme with the same employer. I'm 55.

I have modelled the various years to start taking it from now until 60. I intend to be out by 58.
It surprised me the amount of time it took before you became better off (taking it later), modelling both the full pension (with growth) and reduced pension with tax free amount. 

I appreciate the biggies of restricting future contributions to the DC scheme and tax liabilities but other than that I can't see many disadvantages of accessing it ASAP, unless of course you intend living until you are 100. I think my ultimate decision will be whether to leave the DB whilst I spend the DC or visa versa.

Here are the rules of the DB, built from 1995 - 2021, it closed to new members in 2010.

https://ibb.co/0JWZ7GN

There isn’t really a ‘penalty’ with most DB schemes if you take them early. They simply pay out the same amount over a longer period. The break even is late because that’s when the scheme assumes you will live until. Mostly people underestimate how long the average person will live.

I think people may imagine there is a penalty because at one time early retirement could involve an employer paying more into the DB scheme so that an employee could be paid the amount they would have expected at their normal retirement date. I remember calculating these ‘strain costs’ when I was restructuring departments where some staff were likely to leave on SVER. A few staff would be piqued they weren’t being compensated to go, and would retire anyway and take the cut. They saw that as being penalised - they seemed to put no value on being wanted/needed at this point!

The risks relate to what you do with the pension when it’s in your control. It’s now subject to tax and inflation risk.

Albermarle

I appreciate the biggies of restricting future contributions to the DC scheme

Taking a DB scheme pension ( or an annuity), does not trigger the MPAA, so will not affect your ability to contribute to a DC pension.

vacheron

I'm a deferred member of the Rolls-Royce DB scheme which I contributed to for about 10 years between 1995-2004 so I will have a modest income from this in the future to supplement my DC pot.

I always remember the older employees mentioning back then that there was this "sweet spot" where you could actually retire earlier yet come out with the same money overall, maybe this was just a similar situation to that @Sarahspangles mentioned above?

Now I'm 50 and want to be out by 57, so I am facing the same dilemma of at which point between 57 and 67 I should start taking the R-R element. Fortunately R-R now have a nice web portal where you can play around with the figures to your hearts content, so I will be doing the same over the coming weeks too. 

Cobbler_tone

Albermarle said:

I appreciate the biggies of restricting future contributions to the DC scheme

Taking a DB scheme pension ( or an annuity), does not trigger the MPAA, so will not affect your ability to contribute to a DC pension.

 I genuinely didn’t know that. So other than tax implications there really isn’t much penalty for taking it ASAP. i.e live off the lump sum and pile as much of the current salary as possible into the DC.
Although can you access a deferred DB pot with the same company you are working for and paying into the DC with without retiring?....in fact I have answered my own question, you can't. You either leave it deferred until retirement or transfer the cash value out to another pension.

Sarahspangles

vacheron said:

I'm a deferred member of the Rolls-Royce DB scheme which I contributed to for about 10 years between 1995-2004 so I will have a modest income from this in the future to supplement my DC pot.

I always remember the older employees mentioning back then that there was this "sweet spot" where you could actually retire earlier yet come out with the same money overall, maybe this was just a similar situation to that @Sarahspangles mentioned above?

Now I'm 50 and want to be out by 57, so I am facing the same dilemma of at which point between 57 and 67 I should start taking the R-R element. Fortunately R-R now have a nice web portal where you can play around with the figures to your hearts content, so I will be doing the same over the coming weeks too. 

For LGPS that sweet spot was defined by R85, where once your age plus length of service (including deferred periods) equalled 85 you could retire with no reduction. I have one of these.

Somebody

Cobbler_tone said:

Although can you access a deferred DB pot with the same company you are working for and paying into the DC with without retiring?....in fact I have answered my own question, you can't. You either leave it deferred until retirement or transfer the cash value out to another pension.

Are you sure you can't claim the DB pension whilst continuing to pay in to DC?  An ex-colleague did exactly this to access the tax free PCLS to pay off his ex-partner to buy out her share of the house.

Cobbler_tone

Somebody said:

Cobbler_tone said:

Although can you access a deferred DB pot with the same company you are working for and paying into the DC with without retiring?....in fact I have answered my own question, you can't. You either leave it deferred until retirement or transfer the cash value out to another pension.

Are you sure you can't claim the DB pension whilst continuing to pay in to DC?  An ex-colleague did exactly this to access the tax free PCLS to pay off his ex-partner to buy out her share of the house.

It’s the text from my scheme booklet. I’ve emailed them.