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  • FIRST POST
    • Shabbycat
    • By Shabbycat 15th Jan 20, 3:21 PM
    • 33Posts
    • 5Thanks
    Shabbycat
    SIPP or Added Pension when retiring early??
    • #1
    • 15th Jan 20, 3:21 PM
    SIPP or Added Pension when retiring early?? 15th Jan 20 at 3:21 PM
    I know this question has been asked before but most seem to be a fair way off retirement. Some basic facts first:-

    I will be 54 in May and want to retire at 56 as I will then have full state pension.
    Mortgage free
    Personable earnings this year will be 52,000 or just under.
    Classic pension 24years and 272 days
    Alpha 5 years at the end of this financial year
    SIPP with HL 21,000 in VLS60.
    50,000 cash in cash ISAs and fixed rate saving.
    My NUMBER is 15,000 per year but want 18,000.
    I save 1700 every month since I finished paying my mortgage 3 years ago.

    My plan thus far was to use the SIPP and savings to bridge the gap til 60, and then use remainder of savings to supplement my Classic pension til Alpha and State pension kick in.

    I'm a bit reluctant to invest more in the SIPP so close to needing the funds so was aiming to pay in enough cash to I can withdraw my tax free allowance plus 25% tax free lump sum each year til I'm 60.

    Having read some other posts I wondered if buying added pension is a better.option as I would still get the tax relief for paying into a pension, would be index linked which would be better than leaving cash in a SIPP, and not subject to the risks of the stock market.
    I've spoken to the pension people and they say if I buy added years in Alpha and then opt to covert to Classic because of the McCloud judgement, the added years will also convert to Classic ( I know this is still early days and nothing has been decided yet. Another decision possibly to make next year?? all Classic or stick with Alpha??? )

    My thinking was I could buy enough added pension to counter the actuarial reduction of taking my pension two years early?? I think added pension is good value of you go at normal retirement age but not so great if you go early?? Is it still worth it? or should I just stuck to my SIPP??I

    Thanks very much
Page 1
    • Dazed and confused
    • By Dazed and confused 15th Jan 20, 3:46 PM
    • 6,142 Posts
    • 3,265 Thanks
    Dazed and confused
    • #2
    • 15th Jan 20, 3:46 PM
    • #2
    • 15th Jan 20, 3:46 PM
    I will be 54 in May and want to retire at 56 as I will then have full state pension.
    Are you certain about that?

    Have you checked your State Pension forecast on gov.uk and looked past the headline 168.60 to see what you have built up so far (to 05:04:2019).

    You do know that the "35 years" rules are irrelevant to you?
    Last edited by Dazed and confused; 15-01-2020 at 3:53 PM.
    • Shabbycat
    • By Shabbycat 15th Jan 20, 4:03 PM
    • 33 Posts
    • 5 Thanks
    Shabbycat
    • #3
    • 15th Jan 20, 4:03 PM
    • #3
    • 15th Jan 20, 4:03 PM
    Yes, pretty sure. I need to work three more years to get the full amount and should earn enough by the end of May 2022 for it to count as a qualifying year. If not I will either work an extra month or pay to make up the shortfall.
    • xylophone
    • By xylophone 15th Jan 20, 4:05 PM
    • 32,002 Posts
    • 19,878 Thanks
    xylophone
    • #4
    • 15th Jan 20, 4:05 PM
    • #4
    • 15th Jan 20, 4:05 PM
    Personable earnings
    You're a real charmer?
    • Shabbycat
    • By Shabbycat 15th Jan 20, 4:21 PM
    • 33 Posts
    • 5 Thanks
    Shabbycat
    • #5
    • 15th Jan 20, 4:21 PM
    • #5
    • 15th Jan 20, 4:21 PM
    Pensionable!! Not such a great typist and predictive text very annoying.
    • NedS
    • By NedS 15th Jan 20, 9:24 PM
    • 285 Posts
    • 177 Thanks
    NedS
    • #6
    • 15th Jan 20, 9:24 PM
    • #6
    • 15th Jan 20, 9:24 PM
    Hi Shabbycat,

    We are in a similar position having recently faced the same dilemma as to which represents better value. Here is my thread:

    https://forums.moneysavingexpert.com/showthread.php?t=6036665

    Running the numbers, I couldn't see a huge amount in it either way. In favour of added pension you have a guaranteed index-linked income and are not vulnerable to market movements (risk of imminent crash). In the SIPP corner you have greater flexibility (albeit with far less certainty) with the potential of having some capital to pass on in your will. I think these factors will probably be more influential in your decision making process than purely looking at monetary value.

    For me, increasing my ratio of fixed index-linked income to variable SIPP drawdown income was more persuasive, especially as I'm already sat on a significant amount of cash in my SIPP so any extra contributions would likely remain uninvested for some time. I actually ended up doing a mixture of both. I calculated the amount I would need to contribute to alpha from my salary to reduce my annual salary to 12500 and thus pay zero income tax, and then I put any excess I wish to save/contribute into my SIPP (I earn less than you). I've just sent in my form for added alpha pension contributions for 2020-21.

    I would weigh up how much guaranteed fixed income you have from classic/alpha/state pensions vs SIPP drawdown income and make sure you at least have essential living costs covered by guaranteed income and then consider using your SIPP.

    You could certainly buy more added pension and then use it to counteract the actuarial reduction of taking your DB pension early. I would investigate what the actuarial rates are and whether this represents good value vs just funding those years from your cash/SIPP. I've not looked at doing that as I intend to fund the gap years purely from my SIPP so I don't know what the actuarial reduction rates are like. I had looked at the commutation factor for taking a lump sum from alpha and it was pretty low(x12) so I'd (maybe naively/incorrectly) assumed the actuarial reduction rates would also be unfavourable. I guess I should look at these in more detail closer to the time.

    I will be interested to hear what you decide to do, and why.
    Last edited by NedS; 15-01-2020 at 9:28 PM.
    • GunJack
    • By GunJack 16th Jan 20, 9:56 AM
    • 10,896 Posts
    • 8,187 Thanks
    GunJack
    • #7
    • 16th Jan 20, 9:56 AM
    • #7
    • 16th Jan 20, 9:56 AM
    Can you take the Classic element of the pension whilst leaving the Alpha? I didn't think that was possible, and they had to be taken at the same time, resulting in an often large actuarial reduction on the Alpha part.

    Also, look for the threads on here about the Fire Brigades pensions ruling, which may result in all your service being put back to Classic (or other combinations!!).
    ......Gettin' There, Wherever There is......

    I have a dodgy "i" key, so ignore spelling errors due to "i" issues, ...I blame Apple
    • Shabbycat
    • By Shabbycat 16th Jan 20, 3:54 PM
    • 33 Posts
    • 5 Thanks
    Shabbycat
    • #8
    • 16th Jan 20, 3:54 PM
    • #8
    • 16th Jan 20, 3:54 PM
    Hi Gunjack. I 'be checked and i can definitely take my Classic early and leave my Alpha as they pay out at different times anyway. Ideally I would stay in my job until the pension remedy has been finalised but I'm not sure I can stomach my job for more than another couple of years.
    NedS - It was your post that prompted to look at added pension in the first place, not something I had considered before. I need to look at the numbers and see if it's worth it or not. I think the actuarial reduction in the pension is around 5% and the lump sum 3%.
    I'm hoping one of the experts who are better at crunching the numbers than me will point me in the right direction. I'll keep you posted.
    Last edited by Shabbycat; 16-01-2020 at 4:52 PM. Reason: Predictive text errors
    • bluenose1
    • By bluenose1 16th Jan 20, 5:06 PM
    • 2,251 Posts
    • 3,689 Thanks
    bluenose1
    • #9
    • 16th Jan 20, 5:06 PM
    • #9
    • 16th Jan 20, 5:06 PM
    I know a few people who have took the classic pension early with the actuary deduction this year and the actuarial deduction was approx 4%.
    I am saving more into my SIPP so I can live off that up to the personal allowance rather than taking my Civil Service Pension early. Though if we needed the money it would definitely be a consideration.
    I am a deferred member so cannot buy added years so not sure of the advantage of that over the SIPP.
    Money SPENDING Expert

    • Shabbycat
    • By Shabbycat 16th Jan 20, 6:09 PM
    • 33 Posts
    • 5 Thanks
    Shabbycat
    Thanks for your reply bluenose1. I think I am going to stick with the SIPP, I think for my situation the actuarial reduction out ways any benefit of added years so is not worth it. Can anyone tell me the best platform for interest on cash in a SIPP? Thanks
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