Should I access LGPS at 55

dont_use_vistaprint

Interested in people’s views on this. 

What are some of the reasons other than Tax to not take your LGPS at age 55 ? 

Has anyone done a calculation of how the reduced income and lump sum   might perform in a SIPP (or savings account at 4.6%) for 12 yrs vs leaving it with the government for 12 more years ?

la531983

Are you on about taking the lump sum, or the entire pension with deduction for taking it early (if applicable)?

gravel_2

You may find this forum is a better place to ask this question: https://forums.moneysavingexpert.com/categories/pensions-annuities-retirement-planning

dont_use_vistaprint

la531983 said:

Are you on about taking the lump sum, or the entire pension with deduction for taking it early (if applicable)?

Yes, both components it’s not a lot & I’m not going to hit tax thresholds. I don't need the money but just curious as to why (other than tax) people don’t automatically do this.

It’s a 41.8%  reduction on pension & 15.5% reduction on the lump sum to access 12 years early.

Dazed_and_C0nfused

dont_use_vistaprint said:

la531983 said:

Are you on about taking the lump sum, or the entire pension with deduction for taking it early (if applicable)?

Yes, both components it’s not a lot & I’m not going to hit tax thresholds. I don't need the money but just curious as to why (other than tax) people don’t automatically do this.

It’s a 41.8%  reduction on pension & 15.5% reduction on the lump sum to access 12 years early.

Some people see the reduction as a "penalty" so won't take it early.

Whilst others just see the reduction as the natural consequence of asking for it to be paid for a longer period.

la531983

Also probably depends if you are still working or not if people want to take it early, if I was still working and funding it I certainly wouldnt take a 40% cut.

dont_use_vistaprint

la531983 said:

Also probably depends if you are still working or not if people want to take it early, if I was still working and funding it I certainly wouldnt take a 40% cut.

Not working and not being taxed with or without this income. I totally understand people not wanting to lose 40% of it, but are there any other reasons not to take it and invest yourself?

dont_use_vistaprint

Dazed_and_C0nfused said:

dont_use_vistaprint said:

la531983 said:

Are you on about taking the lump sum, or the entire pension with deduction for taking it early (if applicable)?

Yes, both components it’s not a lot & I’m not going to hit tax thresholds. I don't need the money but just curious as to why (other than tax) people don’t automatically do this.

It’s a 41.8%  reduction on pension & 15.5% reduction on the lump sum to access 12 years early.

Some people see the reduction as a "penalty" so won't take it early.

But people on here are smarter than that aren’t they?

daveyjp

dont_use_vistaprint said:

la531983 said:

Also probably depends if you are still working or not if people want to take it early, if I was still working and funding it I certainly wouldnt take a 40% cut.

Not working and not being taxed with or without this income. I totally understand people not wanting to lose 40% of it, but are there any other reasons not to take it and invest yourself?

Biggest is risk. You aren't trusting the government, the LGPS is a fully funded scheme with investments which are managed.  Can you beat their investment strategy with absolutely zero risk to your funds?

dont_use_vistaprint

daveyjp said:

dont_use_vistaprint said:

la531983 said:

Also probably depends if you are still working or not if people want to take it early, if I was still working and funding it I certainly wouldnt take a 40% cut.

Not working and not being taxed with or without this income. I totally understand people not wanting to lose 40% of it, but are there any other reasons not to take it and invest yourself?

Biggest is risk. You aren't trusting the government, the LGPS is a fully funded scheme with investments which are managed.  Can you beat their investment strategy with absolutely zero risk to your funds?

So it’s not about their strategy this is defined benefit. Everything is known & laid out in the tables showing the reductions.

For each year of the 12 year option it grows by an average of 3.4%

Although the higher growth comes at the end -4.9% growth in year 12, verses 2.1% growth in year 1

The adjusted figure also grows each April by the CPI measured for the year to September in the previous year, regardless of whether you take it or not the rises apply.

Due high inflation in the previous two years it rose by 10.1% in 2023 and 6.7% in 2024 but only 1.7% this year. For the previous 10 years averaged an increase of 2.1% per year.

These numbers do look okay especially when inflation is high, but taking the average growth and CPI adjustment over 10 years excluding the last two years adverse CPI given an average growth of around 5.5% per year

Is that  below what you would expect from your  SIPP?

Baldytyke88

dont_use_vistaprint said:

But people on here are smarter than that aren’t they?

There are some very bright people in here.

Depending on the pension, I believe they increase in line with CPI inflation, which can be below some other measures of inflation.

The stock market should beat inflation by around 3%, but only if you have it invested in the correct share product.

Cashing in a pension can limit your future contributions to £10k if that is likely to affect you.