Commencing Deferred DB Pension Timing

cloud_dog

Hi

This was prompted by the other post recently about timing the commencement of a DB scheme, and the discussion a while ago on here around the benefit of timing the commencement of a deferred DB due to indexing.

I joined the scheme on 4 April 1994, and left the scheme 30 April a few years ago.  My birthday is in November.

I am considering applying to draw the deferred DB on my birthday in November this year (would be 60), but am now wondering if it might be better to wait until 2026 so as to gain the 2025 indexation figure, or do they pro rata any indexation from April 2025 up to the November commencement? (I assume they don't hence the discussion a while ago)

And assuming it is beneficial to wait, what should my target commencement date be, e.g. 5 April or 1 May 2026?

Samuelsjourney

I left my db scheme (deferred) in the month of November. I waited till the anniversary date of leaving (November 2024) for the re evaluation. I then took payment from March 2025 (just before the start of the new financial year).
Seemed to work well for me, no tax issues.
i use the HMRC app and it has my work place payments on there as well as my private pension payments.

Shimrod

cloud_dog said:

Hi

This was prompted by the other post recently about timing the commencement of a DB scheme, and the discussion a while ago on here around the benefit of timing the commencement of a deferred DB due to indexing.

I joined the scheme on 4 April 1994, and left the scheme 30 April a few years ago.  My birthday is in November.

I am considering applying to draw the deferred DB on my birthday in November this year (would be 60), but am now wondering if it might be better to wait until 2026 so as to gain the 2025 indexation figure, or do they pro rata any indexation from April 2025 up to the November commencement? (I assume they don't hence the discussion a while ago)

And assuming it is beneficial to wait, what should my target commencement date be, e.g. 5 April or 1 May 2026?

You would need to know the scheme rules to understand how inflation increases are applied.

In my scheme, the inflation increase is pro-rated for partial years - so if inflation was 2% and you commenced your pension six months in, then you would get a 1% increase in your pension rather than 2% in that first year. Other schemes may just apply the 2% increase (or no increase at all).

You would probably also want to know when the reference point is for the inflation figure, and the date on which the inflation increase is applied. April is common for the latter, although again some schemes will apply inflation on the anniversary of the person's retirement.

cloud_dog

Thanks.  I'll contact the administrator and see if I can get the answers.

german_keeper

Presumably any decision to delay taking a pension until after NPA will involve giving up a few months pension payments in order to benefit from an inflation increase. My wife has a private sector DB due in Feb next year and I hadn't considered this issue, just intended to claim when she is 60.

cloud_dog

I've been working backwards and forwards taking the DB at NRA or earlier.

Thr numbers I've worked through on mine don't really indicate a massive variation between now (Nov / 60) and at NRA.

Originally I was simply going to take it at NRA utilising the PCLS, with a commutation factor of 16, but based on the increased pension benefit if I didn't take the full PCLS being fully taxed at 20%, that gives me a 'real world' commutation factor of 19.  So that was a thought process.

Additionally we have sufficient DC pots to see us through to both of our SP ages (expecting more).

Having been rerunning the numbers in my spreadsheets (DB at 60 with / without PCLS, at NRA with / without PCLS) the number for at 60 with no PCLS and at NRA with PCLS are relatively similar (albeit if I take it at 60, the virtually equivalent PCLS value remains withing my less drawn down SIPP).

So at the moment I am leaning towards taking the DB early.

Having said all that....I keep going round in circles because if I take the DB early, and assuming I pass before my partner, they will have c. £5k less guaranteed income from the DB.  But if that were to occur I'm sure plans could be put in place to possibly direct the use of any / all remaining SIPP money to buy an annuity to make their life as straightforward as possible.  

It is more these non-financial considerations which keep going round in my head rather than the 'simple' mathematical ones 😳