Early retirement from a DB is a bad deal?

MyRealNameToo

Officer_Dibble said:

My (very old and long closed) DB pension has a reduction of 19.4% for early retirement at 55 instead of 60. Presumably actuarial reductions should be similar between schemes unless there are clear reasons why people in different jobs have different life expectancies?

People in different careers, areas etc do have very different longevity patterns, at least according to the actuaries I've seen the outputs from during my time in annuities. As always, the models are based on past data rather than ivory tower thinking of if someone in heavy industry will have a different profile to a white collar worker etc. 

When doing a prior project with circa 400,000 annuitants the actuaries decided there were 6 different patterns emerging from the data based on their original scheme. 

I can't say for pensions but certainly for deferred annuitants the early retirement factor was intended to be cost neutral on a net present value basis. Obviously the reality depends on date of death, inflation and what happens in the markets

michaels

Either the actuarial reduction is 'fair' based on the average scheme member life expectancy or it is not - this will likely depend on the scheme rules, those I have heard of aim to be fair.

Plus taking early may bring some benefit in tax because more of the pension will be taken at 0% or 20% income tax.

Wonka_2

sheslookinhot said:

Don't worry about what you would "lose". Just make sure you have enough to live on then retire happy. No one knows how many days of post retirement life they have. So the sooner you start it the better.

Just done exactly this - I’ve spent my life with spreadsheets coming out of my ears on both a professional and personal level until having an epiphany and deciding to live. 

TFLS close to the max and an annual pension close to (current) average UK salary for life. 

I’m now dabbling with some min wage ‘purpose-based’ stuff and if I lose out on a couple of grand a year in the future for the sake of enjoying life now then so be it. 

The spreadsheets are now well and truly consigned to the Deleted Items folder 

Cobbler_tone

michaels said:

Either the actuarial reduction is 'fair' 

I think most are designed to be. It will be hugely complex and not just on life expectancy. The impact of paying out earlier, potentially for much longer. What you do with the money once you have it. Potentially paying into the scheme less.
I would be amazed if many actually end up knowing/realising/caring if they would have been better off or not, if it is a means to retirement. In the meantime, many may downsize, get inheritance or have over egged how much they need by that stage.

I guess one known in many instances is that the spousal protection will be less by taking earlier but that can be factored into your plans, if that is important to you.

BrilliantButScary

GunJack said:

Another thing, I really don't get why people are so hung up on how much in total they get out of a dB pension - they're all about the level of income you get.

I've got two, one from 60, one from 65, both will be taken at those NRA's with no reduction. That gives me the level of income I want, really don't care what the total amount I get out of them.

Couldn't agree more.
Also, over a couple of recent years the CPI annual increases on my DB pensions were much better than the pay rises in my pre-retirement profession.

Moonwolf

Pat38493 said:

Other factors to consider:
- In some cases it can be worth taking the DB earlier to manage long term higher rate tax exposure in a more even way.
- In some cases, taking the DB earlier, possibly with a PCLS, can be a good strategy to somewhat reduce sequence of return risk whilst bridging to state pension.  I decided to put my DB pension into payment at 56 even with a hefty reduction for this reason.

Fundamentally if taking your DB earlier allows you to have the confidence to retire earlier, does it really matter if you are slightly worse off over your whole life?

I’ve just put in to take one 5 years early because of the sequence of returns risk.  Originally I planned to wait as that would give me more guaranteed income but less DC pot at 70. It can be a difficult decision, it has been for me.

DT2001

I took my DB pension at 51, 9 years before NRD. Acturial reduction from memory (14 years ago) was 35+%. I reckoned I would be worse off around 73 working on gross figures -   I thought expenditure might tail off a bit about 75 so better to have early rather than later. On the plus side I have rarely paid any tax on the pension and it has allowed OH to put more into her pension. On the downside almost all of my pension is now GMP and since the SP change in 2016 about half will no longer increase (as it was ‘covered’ by the state). On a spreadsheet, with hindsight, it was probably incorrect however I will have enough to do what I want to so it doesn’t bother me.