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

Farside71

I don't stack shelves, but work for a retailer after a long career.  Half the people in my position have pensions and are working a few days a week to supplement their income or because they enjoy it,  as part of their retirement.  When you have the option do tell the company to stuff their job at any time, and the company knows it, you are treated a lot better than most near minimum wage staff.

So there are options out there to get additional income without sacrificing the principle of retirement 

Triumph13

The first question is have you checked your state pension forecast and budgeted for any voluntary contributions needed to get the full amount?

Assuming you will get the full state pension, the important thing is that you are going to be fine either way.  Once your SP is in payment you are looking at £1,429 a month on option 2 and £1,652 a month on option 1, so over your 'comfortable' level.

The issue is how much of your savings you have to spend to get through the next nine years until your SP starts.  You might initially be tempted to take a bigger lump sum to help get through this period, but with that lousy commutation rate it's very poor value.  If you give up £1k of pension for a £12k lump sum, £9k of that is immediately eaten up by having to fund that extra £1k a year from capital for those nine years.  When you get to 67 you have £3k left, but have £1k gross, £800 net pa less income for the rest of your life.  Not a very attractive deal!

As others have said, you can't really rely on interest from savings for income - most of the time all it really does is keep pace with inflation.  You are therefore looking at spending some of those savings to bridge the gap.  Under option 1, if you were to allocate say £5k pa from your savings to the bridging period to SP, that would give you just over your comfortable level of £1,200 a month and burn through about £45k.  The good news is that, once your SP is in payment, you are then getting £5k a year more than that level, allowing you to top your savings back up, if needed.

Isthisforreal99

Brie said:

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? 

Did you miss the part where they said they were in good health and were being made redundant.

Marcon

Eldi_Dos said:

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

I was just answering another question and was interested to see this in the Regs for LGPS Scotland:

34.—(1) An active member who has qualifying service for a period of 2 years and whose employment is terminated by a Scheme employer on the grounds of ill-health or infirmity of mind or body before that member reaches normal pension age, is entitled to, and must take, early payment of a retirement pension if that member satisfies the condition in paragraph (3) of this regulation.

Even so, a member can frustrate such a 'requirement' by the simple expedient of not providing bank details, as evidenced in this thread relating to a Civil Service ill health pension (resulting in a right pickle): https://forums.moneysavingexpert.com/discussion/6610482/civil-service-pension-tax/p1

MarlowMallard

At age 58, it looks like a no-brainer to take the max pension / minimum lump sum,  unless you owe money to a drug-lord, you have a life-limiting illness, or you have a 95-year-old very wealthy parent. 

Cobbler_tone

Like many threads you've all been ghosted by the OP. 

On the very limited info, option 1 all day long.

Marcon

Cobbler_tone said:

Like many threads you've all been ghosted by the OP. 

On the very limited info, option 1 all day long.

...who posted their question less than 24 hours ago - seems a bit harsh to suggest they are ghosting anyone, especially as it's the first time they've posted.

Yorkie1

What's the basis for those figures, OP? Are they they amounts you'd expect to get if you delayed retirement until your pension scheme's normal retirement age (e.g. 60), or are they the figures if you retire now (e.g. after reductions have been applied for early retirement, or for immediate payment without reduction because of the redundancy)?

Also, remember that even if you don't access the capital of your savings, you are by no means guaranteed to keep an income of £4K from savings interest - the interest rates appear to be on the way down for now.

shamanicone

Hi all, thanks for all your responses and sorry for the lack of feedback this far....

To try and clarify some of your questions and provide more info.

1) i have been told that there is absolutely no option to defer taking the pension 

2) the early payment reduction has been paid for by my employer, and the figures given include that 

3) I will have the full.state pension when I hit 67 in 8.5 years time.

4) i have a very small SIPP that I intend to try and still contribute what I can into 

From the replies thus far, it woukd seem everyone is suggesting the higher pension and smaller lump sum (which fits in with my previous thinking). 

Please do keep your thoughts coming

itsthelittlethings

I think it’s good to have a figure in mind that you absolutely need, and be prepared to adjust it up or down. At the moment I need 1500/ month but I’m working. Hopefully in retirement spending goes down.

Lump sums vs. Annual pension is tricky. If the interest rates go sky high I guess the lump sum is better but then a DB is theoretically linked to inflation.