Final Salary Pensions
Discussion
As I'm almost 50 and started a final salary scheme in 2000 it seems I can take a reduced lump sum and pension at 50.
However I have just taken on a mortgage and was wondering if taking a reduced pension and lump sum at 50 and put this into making over payments is beneficial.
According to some quick maths the reduced pension is £850 a month and reduced lump sum will be £40k. The pension could be paid as mortgage over payments will reduce the mortgage by 10 years and save £55k in Interest.
Would be happy to hear any financial whizz's advice on this ?
Pension is reduced by 37% Lump sum 27% taken at 50 (10 years before you can take it with no penalties)
However I have just taken on a mortgage and was wondering if taking a reduced pension and lump sum at 50 and put this into making over payments is beneficial.
According to some quick maths the reduced pension is £850 a month and reduced lump sum will be £40k. The pension could be paid as mortgage over payments will reduce the mortgage by 10 years and save £55k in Interest.
Would be happy to hear any financial whizz's advice on this ?
Pension is reduced by 37% Lump sum 27% taken at 50 (10 years before you can take it with no penalties)
Zigster said:
Are you still accruing benefits in that DB scheme and would taking an immediate income now stop you accruing any further benefits?
No this scheme is no longer and replaced by the 2015 scheme so take 100% at 60 or a reduced % from aged 50 onwards.Yes I will be working and on 40% tax already so yes add the pension and it could look more like £600. But the Interest on the mortgage is £500 per month but ovs decreasing.
You need more facts and you need to crunch the numbers properly.
amongst the big questions: If you draw pension at age 50 what annual pension increases will your reduced pension receive in the future? i.e. how much indexation is there?
FWIW the "early retirement factors" used by pension schemes to calculate a reduced pension are typically pretty aggressive. It may be better to hang on to Normal Retirement Age if at all possible.
If you're not confident about this stuff it could be a good opportunity to seek overall financial advice from a paid adviser.
For instance, do you have ISAs? If so, what are your plans for those?
amongst the big questions: If you draw pension at age 50 what annual pension increases will your reduced pension receive in the future? i.e. how much indexation is there?
FWIW the "early retirement factors" used by pension schemes to calculate a reduced pension are typically pretty aggressive. It may be better to hang on to Normal Retirement Age if at all possible.
If you're not confident about this stuff it could be a good opportunity to seek overall financial advice from a paid adviser.
For instance, do you have ISAs? If so, what are your plans for those?
Public sector worker?
You might find that if retiring at 50 then adding up the following 5yrs of pension including the lump sum, is similar to what the lump sum would be had you waited until age 55. So you kind of still receive the same lump sum as you would if waiting till age 55, but It is drip fed to you over the 5yr period in the form of an annual pension.
£40k lump sum
Annual pension £10,200 x 5 = £51,000.00
Total = £91k
You might find that if retiring at 50 then adding up the following 5yrs of pension including the lump sum, is similar to what the lump sum would be had you waited until age 55. So you kind of still receive the same lump sum as you would if waiting till age 55, but It is drip fed to you over the 5yr period in the form of an annual pension.
£40k lump sum
Annual pension £10,200 x 5 = £51,000.00
Total = £91k
Edited by The Gauge on Tuesday 12th August 08:27
The Gauge said:
Public sector worker?
You might find that if retiring at 50 then adding up the following 5yrs of pension including the lump sum, is similar to what the lump sum would be had you waited until age 55. So you kind of still receive the same lump sum as you would if waiting till age 55, but It is drip fed to you over the 5yr period in the form of an annual pension.
£40k lump sum
Annual pension £10,200 x 5 = £51,000.00
Total = £91k
Yes.You might find that if retiring at 50 then adding up the following 5yrs of pension including the lump sum, is similar to what the lump sum would be had you waited until age 55. So you kind of still receive the same lump sum as you would if waiting till age 55, but It is drip fed to you over the 5yr period in the form of an annual pension.
£40k lump sum
Annual pension £10,200 x 5 = £51,000.00
Total = £91k
Edited by The Gauge on Tuesday 12th August 08:27
Always difficult pensions and finances. Pay £500 a month into the pension yet there’s no one who can give out personal advise unless I go to an IFA.
Still need to work though as that’s where the money is.
Downward said:
Yes.
Always difficult pensions and finances. Pay £500 a month into the pension yet there’s no one who can give out personal advise unless I go to an IFA.
Still need to work though as that’s where the money is.
If you are police then the pensions teams wont talk to you, whether they be your own forces internal pension team, or external party as they claim to be far too busy sorting out the remedy and cant devote time to normal pension enquiries. Cops are retiring and not receiving their pension figures before retiring, and some are retiring and not even receiving their pension. The Federation cant advise, and an independent financial advisor won't have the knowledge needed. You have nobody to turn to. The whole fiasco is joke Always difficult pensions and finances. Pay £500 a month into the pension yet there’s no one who can give out personal advise unless I go to an IFA.
Still need to work though as that’s where the money is.
Edited by The Gauge on Tuesday 12th August 13:54
It sounds like your heart (paying off your mortgage) is ruling your head (maximising the pension and reducing tax.)
Your £850 is reduced by 40% to £510 after tax. Your tax free lump sum is reduced by 27% by taking it early. With mortgage rates around 4% the costs far outweigh the benefit. Why not wait until 60 to receive full pension benefits and use your full pension benefits to pay the mortgage down then?
You may be retired age 60. If so you’re unlikely to be a higher rate tax payer and so your enhanced monthly pension (£1350pm at current value?) can be drawn at a lower tax rate than now.
Your £850 is reduced by 40% to £510 after tax. Your tax free lump sum is reduced by 27% by taking it early. With mortgage rates around 4% the costs far outweigh the benefit. Why not wait until 60 to receive full pension benefits and use your full pension benefits to pay the mortgage down then?
You may be retired age 60. If so you’re unlikely to be a higher rate tax payer and so your enhanced monthly pension (£1350pm at current value?) can be drawn at a lower tax rate than now.
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