Pensions

[vesuvius123]

Would taking a private pension 6 months early reduce it a lot or not enough to bother

[woofgang]

depends on the T and C of the pension. You can usually ask for illustrations for various times of takeup and lump sum choice

[gingejbee]

Depends... And, what do you mean by a lot?
Ask the provider for the figures...the only way you can make an informed decision.

[johnny37]

Generally the last twelve months of a pension are invested in cash deposits. Ask your financial advisor what the value is now and what it is likely to be in six months time.

[New Judge]

Are you talking about a final salary scheme, a defined contributions scheme, or a purely private pension which you have organised yourself and in which your employer (if you have one) has taken no part?

[craft1948]

I was in a final salary scheme, the penalties for taking it early were quite harsh.

[New Judge]

They may seem so, craft, but generally they are not as bad as you think.

Most FS schemes apply an “actuarial reduction” of around 5% for each year the pension is taken early. So if the pension is taken, say, three years early, annual payments will be reduced by 15%. However, what is often overlooked is that although the pension is only 85% of the “full” value it is being paid for three additional years. This means that the recipient will get 255% of a years pension which would otherwise not have been taken. If you do a quick calculation you will see that it twenty years into the pension before the cumulative take of the full pension overtakes that of the reduced rate.

This does not take account of the fact that, at present anyway, generally pension increases are outdoing pay increases and also does not include extra income that can be earned from the recipient’s lump sum (which most FS schemes include) which, although also subject to a reduction, will also be paid early.

[Old_Geezer]

Money up front is always more valuable too, due to inflation. That said the thing I think one needs to consider whether the loss of salary income, due to the early retirement, is adequately compensated for by the wealth of "free" time. I think that's the thing that stops me getting out most. Not sure I want freedom from the rat race at the cost of a having potential financial difficulties in the future, due to less salted away in savings. But I'll return to that consideration once the mortgage is paid. Just 6 months though ? I'd suspect it'd not make a great difference going early.

[factor-fiction]

There's basically very little difference- you'd get a small reduction of maybe 2-3% for the rest of your life but you'd get the pension for 6 months longer. I'm assuming you are no longer in the scheme.

[factor-fiction]

The age of death is a key factor but is usually unknown. the unknown factor. If you know you will only live to 70 take it as early as possible; if you expect to live until 90 leave it until the pension is a s big as possible by avoiding actuarial reductions.
It also depends on whether you really need the money now