Early retirement.

MrsJamJam

An 8% reduction for the pension being paid a year early does not seem a good deal to me.
In effect the pension scheme is only expecting you to live for 12 years after retirement where as the other day I read a person retiring at 60 today is likely to live till 84.

janeainsworth.

You said ''It is also assuming that he isn't expecting to depart this life very soon after celebrating his 60th birthday''.
The pension is guaranteed in full for 5 years if he does die and will be paid to his wife and after that she will get half his pension.
If she dies the rest of the full pension will be paid to his estate presumably as a lump sum as I don't think a pension could be paid monthly to the offspring.
My pension was similar in this respect.

Frank

I retired at 58 and managed on savings until taking my full pension at 60. I was advised by my professional association that the actuarily reduced option is never a good deal if you can afford to wait. Hope this helps.

Hi

Thanks everybody for your help.
Looking purely at the figures I could tell he should wait till 60 but I was just wondering if there could be problems outside the figures.
Pension schemes do vary.
The scheme I was in started to pay from the day you were made redundant if you were over 50.
If you had done 30 years service you were paid half your salary but if you had done 40 years services you were paid two thirds.
You had to take the pension immediately or lose it till the time you asked for it to be paid.
Once you got to about 57 the redundancy payment started to reduce to take in to account the limited time you had left to work.
In his case the redundancy payment he is getting is more generous than I would have got if I had been made redundant at 59 but his immediate pension payment terms are not so generous.
I don't know if this may be done for tax reasons or something like that.

Frank

If he can manage until the pension vests this is the best thing to do.

Any pension increases after retirement will be a percentage of the pension he is receiving, for example if he is getting a pension of £100 a week in 2014 when he starts to draw it and the 2015 pension increase is 2%. In that year he pension will rise to £102. If his pension is £92 (£100- 8%) he will only get £93.84. The gap between the two pensions, which is £8.00 on vesting has, after the first increase risen to £8.16 and the gap will grow wider with every year.

Frank the above figures are just an example, so you need not feel the need to discuss what his real pension will be or what the 2015 rise may actually be. The principal is that if he takes the pension early the siparity between the full and mitigated pension will grow and grow.

Frank, if his pension is index linked it is a no brainer and he should wait the year until he receives his full pension. It is also assuming what Janeainsworth said and that he was not expecting to depart this mortal coil any time soon.

janeainsworth

He is in a final salary pension scheme which is index linked so he will not go to anther provider.

Frank

jane good advice there mr.g. changed provider and came off very favourably indeed well worth checking out imo.

Your friend does know, doesn't he frank, that he doesn't have to take his pension from the provider that the company has been using, and he is entitled to take his pot to whichever annuity provider does the best deal?

I would have thought that waiting a few months to get an 8% increase in pension was a no-brainer, particularly if the redundancy payment is sufficient to tide him over for a few months.
Suppose his pension for the sake of argument is £10K per annum.
If he takes it now and lives another 20 years, he will receive £200K less 8% =£184K.
If he waits till he's 60, assuming that's in 6 months time, and died 20 years from now, he will receive 19.5 x £10K =£195K.

This is assuming that the pension is not index-linked.
It is also assuming that he isn't expecting to depart this life very soon after celebrating his 60th birthday, and comes with the usual advice that if in doubt he should consult a qualified financial adviser.

That's what I did when they made me redundant 18 months before I was 60. Luckily at that time, I got both state and occupational pensions at 60.

I personally would try and wait until I was 60 and get my full pension as it is not a good idea having 8% deducted from his pension, irrespective of the amount received, if he takes it now.

He appears to have sufficient funds for him to survive the year, that is the route that I would take.

I would have thought if he is being made redundant most companies would enhance the pension so he wouldn't loose out and make the full pension available to him.

Having said that if he has sufficient saving to support himself for the year then really it's his choice. Other than that I guess he would have to try and find another job, which may proove to be difficult at his age.

I'm not sure about this as I have never been out of work but I thought you could sign on but if you are paid reduncancy money you have to use this before the government will pay you unemployment benefit.