Early (forced) retirement. Which db pension option to choose?

shamanicone

Hi all, interested to hear which of these 2 options you would take (or a third in between option) in my position, and explain why please (defined benefit pension). Made redundant, and want to retire now.

The important bit, I need £1100 a month to get by - and the pension and savings interest (approx 4k a year tax free) is my lot. Im currently in good health

Background: 58 year old male, not working, no mortgage, no dependents, approx £100k in savings and investments, state pension at 67, need around £1200 a month to get by in relative comfort. TIA

I basically get 12k per 1k of pension I forgo if I want more lump sum, its cpi inflation linked.

Option 1)
Pension £9640 a year
Lump sum £3,200

Option 2)
Pension £6,300 a year
Lump sum £42,467

MeteredOut

You're giving up £3,340 (9640-6300) per year to gain £39,267 (42467-3200). That's 11.75 years before you're better off taking the lower lump sum and the higher annual pension. And that's before taking into account the CPI increases built into the pension (although there is an argument that a well invested lump some could match that).

Unless you need the lump sum, or really don't expect to live beyond the 12 years, I'd be taking the higher annual amount. A 12x commutation rate is not very good.

Marcon

shamanicone said:

Hi all, interested to hear which of these 2 options you would take (or a third in between option) in my position, and explain why please (defined benefit pension). Made redundant, and want to retire now.

The important bit, I need £1100 a month to get by - and the pension and savings interest (approx 4k a year tax free) is my lot. Im currently in good health

Background: 58 year old male, not working, no mortgage, no dependents, approx £100k in savings and investments, state pension at 67, need around £1200 a month to get by in relative comfort. TIA

I basically get 12k per 1k of pension I forgo if I want more lump sum, its cpi inflation linked.

Option 1)
Pension £9640 a year
Lump sum £3,200

Option 2)
Pension £6,300 a year
Lump sum £42,467

At the risk of stating the obvious, nobody here is in your position, so all we've got to go on is the couple of lines of information in your post - hardly extensive background!

However, I think most people would see the commutation rate (?public sector scheme) of 12:1 as very poor - especially given you are only 58 and are therefore giving up many more years of future pension payment than, say, someone aged 65.

If you need £13,200 a year to get by, then option 1 is going to be a far safer bet, especially if interest rates drop (and they will at some point).

Isthisforreal99

The 1:12 commutation rate is poor so taking the £9640 pension is a no brainer as it's CPI linked and based on your pension and savings income you won't pay any tax (until you reach state pension age).

So you more or less have your £1100 monthly income you need without touching your capital.

Brie

Forced retirement?  If it's due to ill health could you push for an ill health pension that might get you more?  

Or is it forced in that your employer doesn't want you anymore?  In which case you could supplement your pension with another job or find something that means you don't need to take the DB until a later date.

Will you be collecting benefits?  UC? PIP?  Might that keep you from having to take a pension early?

edited - sorry missed the bit about redundancy.  In which case I would definitely consider taking a small job somewhere.  I've known some worn down middle managers who happily went to Tesco to stock shelves after redundancy in their mid 50s.  

AND have you checked that you don't have another pensions somewhere?  1 DB is not a lot by the time you're in your 50s.  And do check your state pension forecast - see the link in my signature.

Eldi_Dos

shamanicone said:

Hi all, interested to hear which of these 2 options you would take (or a third in between option) in my position, and explain why please (defined benefit pension). Made redundant, and want to retire now.

As far as I know you cannot be forced to take a pension "early".

It may be worth posting on one of the employment/ benefits boards to see what options are open to you before taking any action that cannot be reversed.Take into account any NI credits you may still need for NSP.

Marcon

OP has given precious little information in their post (a point I've made above), but maybe take into account what they have said, especially:

shamanicone said:

Made redundant, and want to retire now.

Doesn't sound like someone who wants a 'small job stacking shelves', or who wants to sign on for JSA (which would force them to look for work when they don't want to).

Eldi_Dos said:

shamanicone said:

Hi all, interested to hear which of these 2 options you would take (or a third in between option) in my position, and explain why please (defined benefit pension). Made redundant, and want to retire now.

As far as I know you cannot be forced to take a pension "early".

...but because they've been made redundant, it's quite possible OP will be paid an immediate pension without any reduction for early payment - a very significant benefit if that's the case. It's another bit of missing information which makes answering these 'what would you do...' questions more than a little difficult.

QrizB

shamanicone said:

The important bit, I need £1100 a month to get by - and the pension and savings interest (approx 4k a year tax free) is my lot. Im currently in good health
Background: 58 year old male, not working, no mortgage, no dependents, approx £100k in savings and investments, state pension at 67, need around £1200 a month to get by in relative comfort. TIA

Based on the info you've given, Option 1 plus your existing savings income will give you the £13-14k pa that you need.

Please note, though, that inflation is your enemy. If you're spending all your savings income, that £4k pa might only be worth £2k pa by the time you get to 67. And interest rates might fall. You might want/need to eat into your savings capital.

Are you foecast a full State Pension once you get to 67?

https://www.gov.uk/check-state-pension

Eldi_Dos

Marcon said:

OP has given precious little information in their post (a point I've made above), but maybe take into account what they have said, especially:

shamanicone said:

Made redundant, and want to retire now.

Doesn't sound like someone who wants a 'small job stacking shelves', or who wants to sign on for JSA (which would force them to look for work when they don't want to).

Eldi_Dos said:

shamanicone said:

Hi all, interested to hear which of these 2 options you would take (or a third in between option) in my position, and explain why please (defined benefit pension). Made redundant, and want to retire now.

As far as I know you cannot be forced to take a pension "early".

...but because they've been made redundant, it's quite possible OP will be paid an immediate pension without any reduction for early payment - a very significant benefit if that's the case. It's another bit of missing information which makes answering these 'what would you do...' questions more than a little difficult.

But they did ask if there was a third option and around 118 hours a month on NMW should give them the income they require , and shelf stackers are in demand at this time of year and would give time to reflect on best option to take regarding pension, and future NSP.

Marcon

Eldi_Dos said:

Marcon said:

OP has given precious little information in their post (a point I've made above), but maybe take into account what they have said, especially:

shamanicone said:

Made redundant, and want to retire now.

Doesn't sound like someone who wants a 'small job stacking shelves', or who wants to sign on for JSA (which would force them to look for work when they don't want to).

Eldi_Dos said:

shamanicone said:

Hi all, interested to hear which of these 2 options you would take (or a third in between option) in my position, and explain why please (defined benefit pension). Made redundant, and want to retire now.

As far as I know you cannot be forced to take a pension "early".

...but because they've been made redundant, it's quite possible OP will be paid an immediate pension without any reduction for early payment - a very significant benefit if that's the case. It's another bit of missing information which makes answering these 'what would you do...' questions more than a little difficult.

But they did ask if there was a third option and around 118 hours a month on NMW should give them the income they require , and shelf stackers are in demand at this time of year and would give time to reflect on best option to take regarding pension, and future NSP.

You are of course right - but if they don't take the pension immediately, they might find it becomes subject to a reduction for early payment if they later draw it from deferred status. That might effectively wipe out any earnings in the interim, and permanently lower the level of scheme pension they receive. Without the necessary information, it's impossible to be sure.

Eldi_Dos

@ Marcon
Thanks for the reply and I do not disagree with anything you say, but I sometimes feel we can be put under a bit of pressure to make a decision, or put ourselves under pressure when it is not needed.

Car sales people are very good at getting us into that frame of mind but I have always had the outlook that the forecourts are going to have cars for sale next week whatever pressure is put on to make the deal.