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Taking DB pension Early?

Including Financial Independence and Retiring Early (FIRE)
Nen2319
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Taking DB pension Early?

#291266

Postby Nen2319 » March 16th, 2020, 1:38 pm

Does anyone have experience of taking their DB pension easily? Good move or bad move. What was your experience and was it the right thing to do?

If I do decide to seriously consider it I’ll go to an IFA of course but some really good views on here so doing a bit of homework first.

Chrysalis
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Re: Taking DB pension Early?

#291279

Postby Chrysalis » March 16th, 2020, 1:58 pm

Do you mean just taking earlier retirement with a reduced pension?
If so, then it’s worth finding out the scheme reduction rates, as they all differ, and then working out how long you have to live to break even. Bear in mind that many schemes offer early retirement reductions that are ‘actuarially neutral’, which means that a scheme member with average lifespan relative to other scheme members can expect to be no better or worse off overall.
So, if you think you will live longer than average then it will be better to take the pension later, if you have reason to doubt your life expectancy then it may be better to take it early.
But it mainly depends on your other resources and plans. It’s a very personal decision, but I don’t think it requires an IFA to decide for you.
If you post more info on both the reductions and how the pension fits with your other sources of retirement income I’m sure you will get more views.

Nen2319
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Re: Taking DB pension Early?

#291311

Postby Nen2319 » March 16th, 2020, 4:22 pm

Thx for the reply. Yes I do.

At 55 the offer is

TFLS = £130k
+
£20k a year.

At 60 the offer is

TFLS = £167k
+
£25k a year.

I'm still working so thought I could use my salary sacrifice to pay the equivalent DB pension amount I get each year to go into my DC scheme. Its not recycling if it come from your DB scheme it seems.

I'm also building up a High yield portfolio of FTSE 100 shares (although that's taken a huge hit in last few weeks - I still have £30k left in and intend to keep buying each month to give me a tax free income from the dividends eventually)

I do have health problems with a heart attack last year so that's another factor.

Chrysalis
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Re: Taking DB pension Early?

#291373

Postby Chrysalis » March 16th, 2020, 7:19 pm

Thanks for the further details.
So, at a very simplistic level,you get £37k and £5k per year more at 60 than at 55, in exchange for 100k more over 5 years. So I reckon break even point is very roughly about 73. You’d be unlucky not to reach 73.
Of course, set against that, is that you can pay more into your DC pension as a result, getting the DB pension paid tax free effectively. (I would just double check recycling rules, aiui they can be triggered if you take tax free cash and use that to make increased contributions).
Other factors - do you have a spouse and is the spouse’s pension reduced if you take the pension early (often they are not).
What’s your overall timescale for retirement and what income will you hope to have then? What are you planning to do with the tax free cash? (Can you exchange tax free cash for more pension, and at what rate?)
Looks to me you are in a good position, as I said it’s a personal decision. If it were mine I would probably wait until 60, because I value the guarantees of a DB pension and would generally want to maximise my guaranteed income. You may have a different mindset of course.

smicker
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Re: Taking DB pension Early?

#291399

Postby smicker » March 16th, 2020, 8:31 pm

I moved my pension approx 1 1/2 years ago.

My accountant recommended a pension consultant who then messed me about for 6 weeks before quoting me a ridiculous figure for the transfer while telling me that it would likely not go through anyway as he would probably not be able to recommend i should move it and he wouldnt allow me to proceed as an insistent client . I then contacted an IFA who wouldnt touch it unless i allowed him to manage the investments and i wasted a number of weeks before he made this clear.

I ended up having to ring around firms asking if they would provide the service. I rang at least 20 companies before i came across one who would do it for me. The cost was 2000 pounds. This company were extremely professional and produced an excellent report detailing various scenarios showing what the potential outcomes might be versus the benefits provided by my existing pension, and all worked to plan and i did not have to proceed as an insistent client.

I rang the same company a number of weeks ago and spoke to the IFA and found that things have now totally changed. They now charge 2000 pounds up front for the report and another 2000 upon completion. They have an incredibly low rate of customers who are recommended to proceed and they will not allow the customer to proceed as an insistent client. The key criteria is that the pension holder is independently wealthy and the pension is almost a nice to have for them. Any hint of needing some of the pension to pay off anything and they wont proceed. Hope this helps if you decide to proceed

Chrysalis
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Re: Taking DB pension Early?

#291404

Postby Chrysalis » March 16th, 2020, 8:47 pm

smicker wrote:I moved my pension approx 1 1/2 years ago.

My accountant recommended a pension consultant who then messed me about for 6 weeks before quoting me a ridiculous figure for the transfer while telling me that it would likely not go through anyway as he would probably not be able to recommend i should move it and he wouldnt allow me to proceed as an insistent client . I then contacted an IFA who wouldnt touch it unless i allowed him to manage the investments and i wasted a number of weeks before he made this clear.

I ended up having to ring around firms asking if they would provide the service. I rang at least 20 companies before i came across one who would do it for me. The cost was 2000 pounds. This company were extremely professional and produced an excellent report detailing various scenarios showing what the potential outcomes might be versus the benefits provided by my existing pension, and all worked to plan and i did not have to proceed as an insistent client.

I rang the same company a number of weeks ago and spoke to the IFA and found that things have now totally changed. They now charge 2000 pounds up front for the report and another 2000 upon completion. They have an incredibly low rate of customers who are recommended to proceed and they will not allow the customer to proceed as an insistent client. The key criteria is that the pension holder is independently wealthy and the pension is almost a nice to have for them. Any hint of needing some of the pension to pay off anything and they wont proceed. Hope this helps if you decide to proceed


The OP isn’t asking about transfer, but about taking a reduced DB pension before the normal retirement age.

Nen2319
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Re: Taking DB pension Early?

#291424

Postby Nen2319 » March 16th, 2020, 10:22 pm

Chrysalis, correct this is about taking it early. I did look at transferring out but didn’t and thank god I didn’t. :(

I was just wondering if someone had done it and could share their experience ?

One thought is that I would have some £200k in the SIPP in 5 years if I reinvested the £20k a year + my current value and my yearly salary contribution so could take £25k of that to offset the missing £37k and take out the rest as needed! Looking at 60 to retire but will prob take a part time job. State pension at 67.

Thx for working out the break even date. Appreciate that.

With the current tax free lump sum I was hoping to help my boy on the property ladder and take a modest rent off him.

ursaminortaur
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Re: Taking DB pension Early?

#291438

Postby ursaminortaur » March 16th, 2020, 10:59 pm

Nen2319 wrote:Thx for the reply. Yes I do.

At 55 the offer is

TFLS = £130k
+
£20k a year.

At 60 the offer is

TFLS = £167k
+
£25k a year.

I'm still working so thought I could use my salary sacrifice to pay the equivalent DB pension amount I get each year to go into my DC scheme. Its not recycling if it come from your DB scheme it seems.

I'm also building up a High yield portfolio of FTSE 100 shares (although that's taken a huge hit in last few weeks - I still have £30k left in and intend to keep buying each month to give me a tax free income from the dividends eventually)

I do have health problems with a heart attack last year so that's another factor.


Firstly will your employer pay into your DC scheme using salary sacrifice or is the DC scheme a non-occupational scheme eg a SIPP ? If the latter then the employer may be reluctant to pay into a scheme which they are not in charge of.
Secondly a DB pension payment of £20k per year whilst you are still working will be taxed and unless your salary is less than £30k will have some or all of it taxed at 40% (or if your salary is over £130,000 some or all of it taxed at 45%).

Nen2319
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Re: Taking DB pension Early?

#291443

Postby Nen2319 » March 16th, 2020, 11:34 pm

ursaminortaur wrote:
Firstly will your employer pay into your DC scheme using salary sacrifice or is the DC scheme a non-occupational scheme eg a SIPP ? If the latter then the employer may be reluctant to pay into a scheme which they are not in charge of.
Secondly a DB pension payment of £20k per year whilst you are still working will be taxed and unless your salary is less than £30k will have some or all of it taxed at 40% (or if your salary is over £130,000 some or all of it taxed at 45%).


Yes it’s a company scheme so they will pay in via salary sacrifice. And yes. I understand the DB payment will be taxed but hope to offset it by reducing my salary by same amount via the salary sacrifice.
Last edited by tjh290633 on March 17th, 2020, 11:45 am, edited 1 time in total.
Reason: Tag corrected - TJH

Scudsurfer
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Re: Taking DB pension Early?

#320064

Postby Scudsurfer » June 20th, 2020, 4:09 pm

I intend to take my DB pension at 55 then increase my current Salary Sacrife pension by the same amount, in order to build a bigger pension pot.

monabri
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Re: Taking DB pension Early?

#322399

Postby monabri » June 28th, 2020, 10:20 pm

Nen2319 wrote:
I do have health problems with a heart attack last year so that's another factor.


If you can afford it ...get the heck out asap would be my advice!

xxd09
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Re: Taking DB pension Early?

#322604

Postby xxd09 » June 29th, 2020, 4:55 pm

There could be options for upgrades of pension and penalty free early retirement if you can claim on health grounds that this is necessary
Check this with your Pension provider
xxd09

feder1
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Re: Taking DB pension Early?

#322898

Postby feder1 » July 1st, 2020, 8:55 am

I took mine early, 20 years ago and it was the best thing I could ever have done!

I worried a bit about future cash flow at first but the investment trusts delivered.

During that time I have travelled the world and look how good that was, now I am lockdown forever more.

Any regrets?

Yes, only that I should have made a really proper effort to get physically fit from first principles rather than think that my efforts at tennis and swimming would do the job. I did manage to learn to run and did a few half marathons.


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