Looking to retire soon……best options?

chalkybar

I really want to retire this year…..current age 63, but not a lot of funds to play with.
I’ve got £110k in savings….mostly in isas
£40k in a Nest scheme.
Also have an old (DB?) from 30-ish years ago which current statement is quoting annual payout just over £9k.
I contacted them recently advising that I wish to start drawing and for an up to date quote.
After waiting nearly 4 months and after many chasing calls/emails!!!!  I have just received the details. I could take an annual salary of just over £9,100 or a tax free lump sum of nearly £45k with a salary reduction to approx £6700. Lesser lump sum values are an option, if preferred.

TBH I hadn’t realised that you could take lump sums with this (no actual pot value?) type of scheme so hadn’t even considered the option.
up until now I had a brief plan to take the 9k salary and to top up with savings for the next 3-4 years until the State pension kicks in…..we’re relatively small spenders….no world cruising for us 😬…..so had budgeted about £20k to cover this period (some using interest earned etc)

What I’m not sure about is whether I’d be better off doing a lump sum with reduced pension, leaving current savings as is…….or keep to original plan (max salary+ use savings)?
most of my searching seems to say an initial lump sum is usually the better option?

ellenvan

If the lump sum is to pay off any debts or mortgage that can be an option.
If not can you get more income by investing the lump sum? Also if you take the full pension without the lump sum , will your pension be subject to inflation plus rises?
I choose to not take any lump sum on my pension as I could not match the income.
Also my pension increases each year by inflation figure, but a lump sum would not increase.

DRS1

Plenty of people on here are against taking the lump sum.  Usually this is because they are looking at a poor commutation rate of 12:1.  Yours looks like 18.75:1 which is better but not stellar.

As mentioned how good it is can depend on what the pension increases will be when your pension is being paid.  Some pensions increase in line with inflation (CPI or RPI) but pensions from a long time ago from private sector pension schemes may not increase on the same basis.  You may find that it increases at inflation capped at 5% or maybe not at all or  that there are two bits to the pension (a GMP and the excess) which increase at different rates.  The lower the pension increases the better the lump sum.

Another factor is your tax rate - the pension is taxable the lump sum is tax free.  But it sounds like you won't be in the higher rate tax band. So that makes the pension a better bet.

A lump sum of £45k can be squeezed into an ISA fairly quickly So you shouldn't be worried about it generating taxable income for too long if you park it in a high interest savings account (or invest it in something if you are that way inclined).

DRS1

Oh and your health/life expectancy can be an issue.  The longer you expect to live the better the full pension option.  If you expect to keel over at 70 take the max lump sum.

Albermarle

most of my searching seems to say an initial lump sum is usually the better option?

Most people take the lump sum, even when the commutation rate is poor.
It is often ( not always) the wrong decision, but people just see the Pound notes.

Also you see a lot of daft comments on line, such as take it before Rachel Reeves gets her hands on it, or before the pension provider goes bust etc 

chalkybar

Lump sum not particularly needed (no debt/mortgage) although my car will need replacing (with nearly new) soon and I could do with some dental work too 😱. But both of these I had resigned to using savings as and when.
i believe this pension is increased with inflation (seems to increase at about £400/y)….
my total isas are giving about £4k/y interest too.

chalkybar

DRS1 said:

Oh and your health/life expectancy can be an issue.  The longer you expect to live the better the full pension option.  If you expect to keel over at 70 take the max lump sum.

If only we knew….😂

chalkybar

I’m also aware that when SP kicks in (currently, anyway) the higher your private pension payout…the more tax you will pay above the personal allowance?

QrizB

chalkybar said:

I’m also aware that when SP kicks in (currently, anyway) the higher your private pension payout…the more tax you will pay above the personal allowance?

Yes, but generally it's better to get 80% of something rather than 100% of nothing.

xylophone

Have both you and your wife checked your SP forecasts?

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

With regard to the DB pension, was normal scheme pension age 60? If not, what was it?

This is a deferred DB pension - presumably the scheme was contracted out of SERPS.

If so,  did you have both pre and post 88 GMP and how does the GMP revalue in deferment?

Has the scheme undertaken GMP equalisation?

How does the excess over GMP increase in payment?

chalkybar

QrizB said:

chalkybar said:

I’m also aware that when SP kicks in (currently, anyway) the higher your private pension payout…the more tax you will pay above the personal allowance?

Yes, but generally it's better to get 80% of something rather than 100% of nothing.

👍 My thinking was if you took a lump sum and shoved it into an isa, you would preserve its tax free status….and actually gain a bit of interest in the process. Whilst reducing the amount you have to hand over to the taxman….