Taking DB pension early.

Weyland_Smithers

Hi there,
 Noob, looking for advice in the pre-retirement wilderness, if anyone can advise.

I’m hoping to retire in 5 years (at 60) and have a small DB pension forecast to be worth 5k pa with a 15k lump sum.
I’m considering taking it at 55, in which case it is forecast to be worth 4k Pa and a 12.5k lump sum, then pay it all into my current workplace DC pension as a boost. I’m a higher rate tax payer and realise I’d be paying more income tax at the higher rate, but wondered whether there would be any pitfalls (other than the DC fund tanking).
I don’t think this would trigger MPPA as is a DB scheme.

Any thoughts would be appreciated.

Brie

I'm wondering what you think you will gain from this other than losing more to tax.  Why not wait until you actually stop working or perhaps reduce your hours so that you're not in such a high tax bracket?   Your DB fund likely has some growth potential and give you a guarantee, even if it's for a relatively small amount.  

daveshep26

Weyland_Smithers said:

Hi there,
 Noob, looking for advice in the pre-retirement wilderness, if anyone can advise.

I’m hoping to retire in 5 years (at 60) and have a small DB pension forecast to be worth 5k pa with a 15k lump sum.
I’m considering taking it at 55, in which case it is forecast to be worth 4k Pa and a 12.5k lump sum, then pay it all into my current workplace DC pension as a boost. I’m a higher rate tax payer and realise I’d be paying more income tax at the higher rate, but wondered whether there would be any pitfalls (other than the DC fund tanking).
I don’t think this would trigger MPPA as is a DB scheme.

Any thoughts would be appreciated.

I took one of my prior employers DB pensions early (55) - and making significant additional pensions contributions for several years before I shortly stop.  However, i think you need to consider overall situation and if this is your only DB scheme I wouldn't be so keen to recommend early trigger (ERFs applying) - UNLESS YOU ARE CERTAIN you will end up with too much regular income at 67+.  What's your overall provision situation?

Isthisforreal99

Number 1 question - do you need the money and I mean need. If not, leave it where it is. Is it a deferred pension growing by inflation?

Frankly it would be bonkers paying 40% tax when you didn't have to.

Marcon

Weyland_Smithers said:

Hi there,
 Noob, looking for advice in the pre-retirement wilderness, if anyone can advise.

I’m hoping to retire in 5 years (at 60) and have a small DB pension forecast to be worth 5k pa with a 15k lump sum.
I’m considering taking it at 55, in which case it is forecast to be worth 4k Pa and a 12.5k lump sum, then pay it all into my current workplace DC pension as a boost. I’m a higher rate tax payer and realise I’d be paying more income tax at the higher rate, but wondered whether there would be any pitfalls (other than the DC fund tanking).
I don’t think this would trigger MPPA as is a DB scheme.

Any thoughts would be appreciated.

Wouldn't trigger MPAA but could well be seen as pension recycling of the lump sum.

Weyland_Smithers

Thanks guys.
I don’t need the money now. I was just wondering whether the potential growth of the lump sum and 4k (less 40% tax!) invested in my employer DC for 5 years was more likely to bring bigger gains than leaving the DB alone.

Marcon

Depends how you invest it. What's your attitude to risk?

Weyland_Smithers

It’s a Teachers Pension and was just looking to overpay into my current employer DC scheme.