Stepped pension advice please

Wrongway

I wonder if I can get a bit of advice.
I am 55 and have decided to accept the offer of redundancy at the end of the year. This involves a good redundancy payment and my full final salary pension. In other words not percentage penalties to taking the pension before aged 60. After taking 25% from the pension as a lump sum I will be left with around 11k per year with annaul cost of living rises. One of the offers with the pension is to "step" it. The approximate figues I have been given are £3064 PA increase in the pension from 11k until state pension age when it will then reduce by £4761 plus any changes that have been made to the state pension amounts by then. I think as a percentage. I take this to mean if the state pension has incresed by £1000 by the time I am 65 then the £4761 will go to £5761. Just to see if I understand the idea of the stepped system. Assuming no increase in state pension etc. If my total state pension is £7000 a year at 65 and I have accepted the step htne I will start off at 11,000 + 3064 = 14,064 till 65 then I would get (14,064 - 4761) + 7000 = 16,303. Is this the general idea? I ask because my original understanding of stepped pensions was that when the state pension kicked in you get effectively a bumpless transfer and wouldnt see any increase or decrease.

What are the general thoughts on stepped pensions like this. For myself more income earlier on would be more useful than later, but will I be loosing out a lot by doing this?

Thanks.

jkj_2

Hi, in the same position myself i.e. taken a step pension. I think you'll find that when you are 65, the pension you are receiving drops by the actual state pension at that time. So for you, the £14500 drops by £7000 as you suggest, but then you receive your state pension of £7000 or whatever it is at the time, so nothing should alter, except your money is coming in from two sources instead of one.

benny5

Not sure about the logic being applied here and I may be completely wrong, but is the state pension separate to occupational plans. In which case the ‘step’ payment at 55 is simply an advance which is recovered from 65 onwards.
So you get an extra £1697 (plus inflation) PA, for 10 years, which is then recovered by the reduced payments over the remainder of the retirement period.

Whether this exchange is a good deal or not is one for the experts.