Start Date of Pension

[MaraMan]

I currently have a SIPP in drawdown on which I pay some income tax and have what appears to the correct tax code, although this only started in March this year. I have decided to take my defined benefit pensions early, on or around my 58th birthday next March. It was previously planned to start on my 60th birthday but the penalty for bringing it forward 2 years seems quite low.

Anyway my question is whether it would be better to start it paying from April 6th next year, rather than my birthday in early March, in order to hit the new tax year and make the tax situation simpler, or doesn't it really matter? I don't really want to be on an emergency tax code, but maybe that's unavoidable? I appreciate the personal allowance has gone up a little and as I would only be paying the basic rate will make a small difference.

I can't make up my mind what is the best course and so would welcome any thoughts.

Thanks

[gryffron]

I would guess the penalty on the DB Pension would be related to your birthday. So if you start taking it later than your birthday, you are actually giving up a Pension payment for no benefit? Or do they really calculate it as 22/23 months extra money? Not worth giving up benefits for the sake of a tiny bit of tax. I would take the benefit as early as possible and put up with the tax hassle.

Don't they use a 0 tax code for secondary Pensions anyway, so they are entirely taxed at basic rate with no allowance? That's certainly how it used to work. Not sure if it still does.

Gryff

[MaraMan]

Thanks Gryffon. I am not sure how they calculate it but you are right to point that out. I will take it at my birthday.

Just have to decide whether to take the 25% tax free lump or not now. I have quite a bit invested in equities and was treating this DB pension as a bond proxy. If I take the Lump Sum then I could probably take an income of 4% in divs (FTSE 100 tracker or similar), whilst maintaining the initial sum, or growing it. But this would increase my exposure equities. I am not particularly familiar with bonds and am worried about the value of these in a rising interest rate environment.

[mearnsfool]

My previous employers pension department when calculating the defined benefit pension scheme payments and discounts calculated it on a daily basis, i.e., if you left on 15 April they would look at the total number of days worked say over 20 years x pensionable salary divided by 365 days.

Any discount, say 5% for going at 59 rather than 60 and you left 50 days after your 59th birthday, the would calculate (365-50), (315 days divided by 365) times 5%, therefore circa 4.32% of your pensionable salary as a discount.