Taking DB early - is there a standard calculation?

[TheFriesian]

Hi, I'm trying to get a plan to FIRE together, general thoughts are to leave work at 50 and live off investments and hobby business until pensions kick in. I've just dug out all the paperwork and will come back with details for advice if that's ok.

I have 3 DB pensions:
£1.2k at 60
£6.5k at 60
£12k at SPA

My plans don't necessarily include having to take them early but I'd like to look at some scenarios, is there a way standard way to calculate what they'd be if taken at an earlier age, or does it depend on the provider?

Many thanks

TF

[Alaric]

or does it depend on the provider?

It depends on the scheme in question, but you might expect to lose 5% to 6% of future lifetime income for each year. Taking a transfer value and using a SIPP for income is another approach, but the pension transfer advice industry has yet to really catch up with this option.

[TimR]

Another consideration depend on whether you have a partner or children.

Many DB pensions pay a widows pension, children in FTE allowances and even a funeral payment so a DB pension may have some added benefits. It is worth checking with the DB scheme if you have a partner & children

TimR

[DrBunsenHoneydew]

or does it depend on the provider?

It depends on the scheme in question, but you might expect to lose 5% to 6% of future lifetime income for each year. Taking a transfer value and using a SIPP for income is another approach, but the pension transfer advice industry has yet to really catch up with this option.

If any of the pensions are in unfunded public sector schemes, the transfer to SIPP option would likely be impossible.

The reduction for taking a pension early varies with what the normal pension age for the scheme is. As Alaric says, it can be as high as 6% (e.g. for taking one-year early from a scheme with a normal age of 65+, down to less than 4% for each year if taking 5 years early from an age-60 scheme. Lump sums would suffer less reduction than the ongoing pension.

[flyer61]

TF

As they are small how about basing your FIRE on not touching them until Normal Pensionable Date (NPD). You wouldn't be able to access any of them before 55 anyway. if the cash transfer values are attractive and you can do this without being scalped by the criminal pension industry it might be worth looking at. You are well below pension protection fund thresholds so even if the scheme(s) are significantly underfunded you should still be reasonably covered.

Personally, I transferred my big one to be able to access at 55 and left my two small ones alone circa 11K per annum.

Transferring the big one has the advantage that the wife gets the lot if I slip the surly bonds.....

[DrFfybes]

Just spotted this thread, and it does depend on the scheme.

However be aware that it can also change.

The Peninsula Pensions Local Govt one for the SouthWest (rather quietly) changed their recently from approx 2.9% reduction per year taken early to about 5%.

This was somewhat of a disappointment[1] to a 60+ colleague who had decided to sit it out another 12 months and then found his pension was going to be less than if he'd walked out a year earlier.

Paul

[1] I think his exact phrase contravenes a few posting guidelines, and quite a few rules of physiology.

[mickeypops]

It definitely differs from scheme to scheme. I intend to retire next year aged 63 yr 9 months. One of my prior employer's DB schemes quoted me a 9% reduction for retiring before 65, a second employer 5.2% for exactly the same timing. Go figure!