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DB pension - early retirement?

vrdiver
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DB pension - early retirement?

#173263

Postby vrdiver » October 12th, 2018, 12:27 pm

Mrs VRD has a small DB pension. From the benefit illustrations, it seems that she would sacrifice 8% of her pension for each year she commenced payment early.

The scheme is underfunded (80% IIRC) and a pain to deal with (it normally takes 6 months and 3 or four letters to get a correct answer - I usually find basic errors in their responses where they have differed from the scheme rules in calculations etc, which upon querying, they then correct...)

The scheme rules dictate a growth of 5% each year (GMP element 6.25%, but stops at 60) whilst deferred, and when the pension is taken.

A 50% pension is payable should I outlive her.

A simple addition of pension and lump sums suggests that taking the pension early (at age 55 vs 62) would take until age 67 before the delayed pension payments overtook the earlier option. If the early commencement cash was invested, obviously there is more risk, but the potential to outperform is boosted.

Mrs VRD has a slightly increased chance of early mortality vs her contemporaries (approx 15% increased "population" mortality, but obviously a binary outcome for Mrs VRD!) due to historic health issues. Mentioned here because longevity expectations may affect people's views of relative risk.

Summary:
DB pot is not material to financial situation.
Early commencement reduces pension by ~8% for each year.
Life expectancy is lower than average.

Q: Is it sensible to start the pension now, or wait?

I appreciate there are probably lots of additional details required for a quantitative answer. I'm ambivalent, it looks like a "do you feel lucky" question, rather than a serious financial calculation, so we thought we'd get a second opinion here.

Thanks for reading
VRD

YeeWo
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Re: DB pension - early retirement?

#173301

Postby YeeWo » October 12th, 2018, 3:03 pm

With a pre-existing condition,on the basis the scheme itself isn’t well funded and on the basis the payment isn’t critical to day to day living - wouldn’t it be worth contemplating seeing what the transfer value into a SIPP would work out at? I appreciate you’ll lose the DB guarantee but if you’re getting 25>30 times the annual payout it may be worth at least thinking about?

vrdiver
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Re: DB pension - early retirement?

#173385

Postby vrdiver » October 12th, 2018, 8:00 pm

YeeWo wrote:With a pre-existing condition,on the basis the scheme itself isn’t well funded and on the basis the payment isn’t critical to day to day living - wouldn’t it be worth contemplating seeing what the transfer value into a SIPP would work out at? I appreciate you’ll lose the DB guarantee but if you’re getting 25>30 times the annual payout it may be worth at least thinking about?

I did look last year, but got stopped dead when trying to find an FCA registered advisor who wouldn't charge an arm and a leg relative to the size of the fund to provide "advice" which is a pre-requisite of the administrators to transfer from a DB to a DC (SIPP) scheme.

I'm tempted to have another look, as dealing with the scheme administrators is so painful that a % hit on the transfer value starts to look like value for money...

VRD


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