Take DB pension now 3 years early?

zAndy1

I have a DB pension with a NRA of 60, I'm currently 57 and considering taking early retirement to use the lump sum to pay off debts. The fact I'll be taxed on the monthly pension payments doesn't bother me, it's just a bonus at the end of the day. I might be being made redundant later this year and am currently making a loan payment of £450pm (settlement £15.5k) and approx 40 payments to make (APR 8.9%). Also have credit cards with a balance of around £20k and making payments of around £800pm towards. Had quotes and if I take the pension now it's £33k lump sum and £5k pa, wait till 60 and it's £38k lump sum and £5.8k pa. My health isn't great with stress I believe paying a big part in that. Can't help thinking considering my health and the debt that I should just take the pension now , £5k less lump sum and £800pm less pension isn't worth waiting for in my opinion when I could take it now and clear pretty much all of my debt and save myself £1250 a month (which I could then save in an ISA or use to overpay the mortgage). Wife has a secure job (teacher) and she's 5 years younger than me and will get a decent teacher's pension when she retires. I also have another DC pension with £150k in that I've already taken the tax free lump sum out of. 
Thoughts appreciated as to whether it's a good idea to take the DB pension early? I'm currently a 40% taxpayer but am thinking of going part time 4 days and increasing my pension payments (sal sac) to bring myself under the 40% tax threshold even including the DB pension payments. 

Thanks

cloud_dog

What did you use the DC TFLS for?

It just appears that you seem to be continuing to steal from Peter to pay Paul.

You and your partner appear to be in very solid jobs (financially), and yet there is still a relatively large amount of debt to deal with.

I would worry that if you take the DB early with the PCLS it may not resolve / change the potentially underlying cause?

Obviously, I'll caveat this by sating that I don't have full insight into your households finances and circumstances etc.

QrizB

Good points from cloud dog above.

You might want to start a thread over on Debt Free Wannabe:

https://forums.moneysavingexpert.com/categories/debt-free-wannabe

...where you'll get better engagement with the debt management people and might find that you can clear the debt sooner than your current plans allow, without having to take your pension early. They'll ask you to share a statement of affairs (SoA). There's a popular tool here that might help:

https://www.lemonfool.co.uk/financecalculators/soa.php

zAndy1

Used it to do some home improvements and help our daughter out when she was going through a tough time , I didn't want to take it but all I'm going to say is I didn't really have much choice under the circumstances at the time and if wasn't a massive amount , my pension has increased by 40% in the last 2 years since I took the TFLS.
Once this debt is cleared we would have a good amount of excess income to chuck at the mortgage or to save which considering my precarious job situation is pretty important, also would be able to maximise DC pension contributions. I reckon even taking the DB pension early me and my wife will be getting £50k pa (today's money which will increase with inflation) between us when we both get to state retirement age and taking the DB pension now will help ensure we have our mortgage cleared by then. Wife potential pension £30k pa, me £18k pa plus DC pension drawdown, hoping the DC pension will be worth £200k at least by the time I retire or get made redundant. Getting made redundant later this year while possible is the worst case scenario and pretty unlikely I think but I don't think I'll get to 60 in my current job put it that way...

tacpot12

Have you stopped spending on the credit cards? If you haven't, then don't touch your pension. If you have stopped, and you and your wife are confident that you can manage without incuring more debt, then actually your plan does make sense. 

But you must stick to your plan of overpaying the mortgage with the money that clearing the debts frees up. Once the mortgage is gone - you haven't said how much it is, so I am assuming the worst - you can then start to restock your retirement savings. Using ISAs will give you more flexibility, but make sure you have maxed out what your employer will contribute to your pension first. The tax relief and employer contribution would make saving into your pension the best value.   

SarahB16

zAndy1 said:

...  am thinking of going part time 4 days and increasing my pension payments (sal sac) to bring myself under the 40% tax threshold even including the DB pension payments. 

I think you definitely need to continue working full time especially with all that debt.  You can bring yourself under the 40% tax threshold from increased pension contributions.   

I don't know your background but you seriously need to consider how all this debt arose and ensure it's not an ongoing problem and seek help if you need it.    

zAndy1

tacpot12 said:

Have you stopped spending on the credit cards? If you haven't, then don't touch your pension. If you have stopped, and you and your wife are confident that you can manage without incuring more debt, then actually your plan does make sense. 

But you must stick to your plan of overpaying the mortgage with the money that clearing the debts frees up. Once the mortgage is gone - you haven't said how much it is, so I am assuming the worst - you can then start to restock your retirement savings. Using ISAs will give you more flexibility, but make sure you have maxed out what your employer will contribute to your pension first. The tax relief and employer contribution would make saving into your pension the best value.   

Yes stopped spending on the credit cards and yes very confident we can manage without incurring more debt, even if I lost my job and resorted to taking £1000pm out of my DC pension fund we would have more than enough to overpay the mortgage significantly. Mortgage balance is £150k with 18 years left and £1k pm, I am aiming to have it paid off by the time I'm 65 and my wife is 60 so she can retire 'early'. 
And yes while I'm still working I plan on maximising my pension contributions as soon as the debt is paid off

katejo

zAndy1 said:

I have a DB pension with a NRA of 60, I'm currently 57 and considering taking early retirement to use the lump sum to pay off debts. The fact I'll be taxed on the monthly pension payments doesn't bother me, it's just a bonus at the end of the day. I might be being made redundant later this year and am currently making a loan payment of £450pm (settlement £15.5k) and approx 40 payments to make (APR 8.9%). Also have credit cards with a balance of around £20k and making payments of around £800pm towards. Had quotes and if I take the pension now it's £33k lump sum and £5k pa, wait till 60 and it's £38k lump sum and £5.8k pa. My health isn't great with stress I believe paying a big part in that. Can't help thinking considering my health and the debt that I should just take the pension now , £5k less lump sum and £800pm less pension isn't worth waiting for in my opinion when I could take it now and clear pretty much all of my debt and save myself £1250 a month (which I could then save in an ISA or use to overpay the mortgage). Wife has a secure job (teacher) and she's 5 years younger than me and will get a decent teacher's pension when she retires. I also have another DC pension with £150k in that I've already taken the tax free lump sum out of. 
Thoughts appreciated as to whether it's a good idea to take the DB pension early? I'm currently a 40% taxpayer but am thinking of going part time 4 days and increasing my pension payments (sal sac) to bring myself under the 40% tax threshold even including the DB pension payments. 

Thanks

My DB pension scheme doesn't allow me to take any of the pension until I fully retire. I hadn't planned to but I asked because I was coming across others who were doing this. Have you checked that you can? 

SarahB16

katejo said:

My DB pension scheme doesn't allow me to take any of the pension until I fully retire. I hadn't planned to but I asked because I was coming across others who were doing this. Have you checked that you can? 

I do sometimes wonder katejo if it would be financially better for you to leave your job so that you can take your pension and just get a lower paid part time job.  I do wonder if you have ever looked into how much you are giving up by not taking your pension now as I think with what you are doing you might be financially worse off. 

I don't want this topic to go off on a tangent but perhaps consider sharing your options in a new thread if you wish to. 

Hoenir

zAndy1 said:

I might be being made redundant later this year 

Then you might as well sit it out and accrue further DB entitlement. Receive the full redundancy package. 

zAndy1

Hoenir said:

zAndy1 said:

I might be being made redundant later this year 

Then you might as well sit it out and accrue further DB entitlement. Receive the full redundancy package. 

I say I might be made redundant, what I mean is I might be forced into a position where I resign. I doubt I'll be made redundant, I'll be given the option of working miles from home or resigning basically so I don't think a formal redundancy package will be on the cards