| Pension commencement options 12:02 - May 11 with 1391 views | longtimefan |
I’m in the fortunate position of having a deferred final salary pension from a previous employment. I’m almost certainly going to start taking this on my 60th birthday later this year. It’s a fairly standard scheme in that, by default, it pays a pension equal to 1/80 of final salary per year of service and offers a tax free lump sum of 3x the yearly pension. However it also provides an option to take a larger tax free lump sum, almost double the default, with a resultant decrease in the yearly pension of around 13%. My initial instinct is to take this later option, but I’m in two minds really. I have no large loans to pay off and no particular plans for the lump sum which means it will largely remain in cash or invested some how. I don’t intend to actually retire for at least another couple of years. Given current interest levels and investment returns I not really sure whether taking the larger lump sum is the right thing, especially as the pension income is fully index linked. Not knowing the future makes these sort of decisions quite difficult. What do people think? |  | | |  |
| Pension commencement options on 12:17 - May 11 with 1324 views | Sikamikanico |
There's a lot of factors to consider, including family history when they passed with your own current health to consider. All a little morbid
Worth looking at the numbers as a larger tax free lump sum may give you a short term increase in overall return but the lower amount and higher pension may be better overall depending on long you live for. | | | |
| Pension commencement options on 12:20 - May 11 with 1312 views | bluefunk |
Pm sent |  | | |
| Pension commencement options on 12:24 - May 11 with 1299 views | itfcpaul |
I worked mine out this way to see what the financial benefit would be longer term, obviously I am not aware of you are, so please bare with my calculations
I calculated the total income to you based on initial lump sum and higher monthly payment as opposed to enhanced lump sum and smaller payments and worked out the difference, mine worked out at around £20 k over 20 years, which does seem a lot but broken down in figures I went for the bigger lump sum so that could use it now to do what I want, the difference in pension per month was around £20 a week and to be honest, because of my situation (i took my pension early at 57 and still currently work) it made no great difference but not having to wait for the pension payments to get me to the figure to include the enhanced payment meant it was easier to plan ahead for my retirement in 2 years, hope that helps, PM me if you want a chat | |
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| Pension commencement options on 12:49 - May 11 with 1244 views | Pinewoodblue |
Make sure taking pension early doesn’t impact on the tax you will be paying as you are still working.
How big a penalty,( reduction) will there for triggering the pension early. I took a pension early, from age of 59. Was just planning ahead, and approached the company for an update as hadn’t heard from them for ages. They found notification of change of address but didn’t update computer system. They offered pension from next birthday. Would have had to live until over 100 before I would have be worse off by waiting until 65.
Wife was made redundant around same time, so didn’t get another job. Pension covered her lost contribution to household budget.
Think you can take 25% as a lump sum, without incurring any tax liability.
Taxman will allocate your tax code, probably to the pension but you will pay more tax on your normal earnings. |  |
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| Pension commencement options on 14:28 - May 11 with 1116 views | peterleeblue |
As FS Pension is deferred you could potentially ask them for a transfer value as an alternative. They may be quite generous so as to not have the liability to you for as long as you live.
To be honest its a bit of rigmarole completing the transfer but it may prove better value.
Its also a good time to invest if you don't need the money for a few years. It is also has the benefit of any balance that outlives you and your spouse forming part of your estate.
I had 2 deferred schemes that were worth approx. £7k per annum in income @ 65. Significantly less at 55. I have no plans to work till 65 so wanted earlier access so took transfer values of £250k. With a fair wind I can couple this with my current live Pension at 55 and look at taking 25% Tax Free of fund value at 55 and living of the lump sum and taking £12k per annum in income working Part Time to age 60 when a further £8k p.a. from another FS scheme kicks. I wont be having 4 holidays per year and buying flash this or flash that. But I will be out of the high stress Sh!t in less than 2 years. Cant Wait!!! |  | | |
| Pension commencement options on 15:13 - May 11 with 1074 views | WeWereZombies |
| Pension commencement options on 12:49 - May 11 by Pinewoodblue |
Make sure taking pension early doesn’t impact on the tax you will be paying as you are still working.
How big a penalty,( reduction) will there for triggering the pension early. I took a pension early, from age of 59. Was just planning ahead, and approached the company for an update as hadn’t heard from them for ages. They found notification of change of address but didn’t update computer system. They offered pension from next birthday. Would have had to live until over 100 before I would have be worse off by waiting until 65.
Wife was made redundant around same time, so didn’t get another job. Pension covered her lost contribution to household budget.
Think you can take 25% as a lump sum, without incurring any tax liability.
Taxman will allocate your tax code, probably to the pension but you will pay more tax on your normal earnings. |
Also do not assume you will not be paying tax once you are a full pensioner, you do not need to receive much more than a standard state pension (I know there is no such thing and most of us end up on differing amounts but you know what I mean - around ten grand a year) to find your income taxed.
So beyond the 25% of the pension or the three times final salary that you are getting tax free I guess that you will be taxed if you take more out of your pension pot at the same time. Stay alert to different rules on different funds that may allow you to either take lump sums out in years when your income is below the personal allowance or below higher rate taxation (I blinked and missed an opportunity last tax year and I think it will cost me six hundred quid) or consider ways of deferring your pension until personal allowances and tax rates rise enough to entice you into buying an annuity on a, hopefully, increased sum without undue taxation on the pension. |  |
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| Pension commencement options on 15:37 - May 11 with 1028 views | bluelagos |
1. Would suggest you engage an IFA or Pensions advisor to confirm figures, discuss options.
2. Calculate exactly what it means. You need to compare the figures - namely the additional lump sum offered vs the reduction in pension.
So lets say the pension on offer is £15000 pa. And you can reduce this by 13% pa to gain the additional lump sum.
15k pa x 3 would be an additional £45k lump sum. (You said slightly less)
And 13% of 15k is £1950
So you can have £45k now or £1950 a year. (Use the exact numbers) - that is your decision.
Much will depend on
a. Do you need £45k now?
b. Can you live comfortably on a reduced pension? (£1950 less pa)
c. Is the pension index linked? If so, the £1950 will go up.
d. Are you healthy? If you expect to live into your 90s the £1950 a year will be better. If you die at 70, the £45k would be better.
Quite a complex decision - so defo get some proper advice.
You can also read up on the "which" website
https://www.which.co.uk/money/pensions-and-retirement/options-for-cashing-in-you
Last comment from me - any advisor who suggests things could be making money on the back of that advice, so always ask them what/if they will be making - just so you are sure their advice is truly "independent". |  |
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| Pension commencement options on 18:12 - May 11 with 938 views | longtimefan |
Thanks to everyone who has commented on here and PMs. Currently have no real idea which way I’ll plump but I’m lucky that my current employer retains an IFA who provides advice free to employees, so I’ll be consulting them before making a decision. Your thoughts and experiences though have prompted further questions in my head that I will now raise when I see the IFA. Many thanks to all. | | | |
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| Pension commencement options on 22:44 - May 11 with 779 views | peterleeblue |
| Pension commencement options on 18:12 - May 11 by longtimefan |
Thanks to everyone who has commented on here and PMs. Currently have no real idea which way I’ll plump but I’m lucky that my current employer retains an IFA who provides advice free to employees, so I’ll be consulting them before making a decision. Your thoughts and experiences though have prompted further questions in my head that I will now raise when I see the IFA. Many thanks to all. |
Good luck and let us know how you get on. Could learn something. | | | |
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