taking pension early.

[TrueBlueTerrier]

not sure why every union rep you speak to tells you not to take pension early. have got my projected figure and even with the loss of 4 grand approx in lump sum by taking it 15 months early i still will be in credit for next 4 to 5 years because of monthy pension payment. who knows if i will be alive when i finally lose slightly. it seems too good to be true. keep looking for a downside to it but cannot find one.

1 downside to taking it early is that you loose any further pension you would have got by paying in for another number of years, and also Royal Mails payments as well. IIRC when you take your pension early you will receive a lower pension than if you had kept paying in till you reached retirement age.

[RobertT]

If you take the pension early, does the 5% per year reduction come from the lumpsum, pension, or both ?

There may be exceptions but generally it's both. Also remember that Section A/B members have the option of reducing their lump sum to give more pension and Section C members can reduce their pension to give a higher lump sum. But the 25% limit must still be adhered to!

Also, does the actual value of your pension pot stay the same or get reduced as well (for AVC purposes)?

The main scheme value will be reduced. Your AVC pot will be the same amount in money terms, but will give you a smaller annuity / pension because you're taking it at an earlier age.

[RobertT]

not sure why every union rep you speak to tells you not to take pension early. have got my projected figure and even with the loss of 4 grand approx in lump sum by taking it 15 months early i still will be in credit for next 4 to 5 years because of monthy pension payment. who knows if i will be alive when i finally lose slightly. it seems too good to be true. keep looking for a downside to it but cannot find one.

If you are going to continue working(if that is what you're doing) the extra income that your pension pays will seem attractive. But what happens when you do pack up work? Will the RM pension and the basic state pension, currently £102 per week, be enough to live on?

[Brainache]

The main scheme value will be reduced. Your AVC pot will be the same amount in money terms, but will give you a smaller annuity / pension because you're taking it at an earlier age.

Hi Robert T,
If the main scheme value is reduced when taking it early, then the amount of AVC you can take tax free also goes down. I thought that one reason for doing AVC`s was to make up for taking pension early. I was hoping that if the value stays the same, then any reduction for taking it early could be filled by my AVC tax free lump sum. If I took my pension early, I don`t see why the fund value would be reduced as it is simply paying out less, earlier, but for longer - so the fund would still need to have the same value.

[RobertT]

If the main scheme value is reduced when taking it early, then the amount of AVC you can take tax free also goes down.

Correct.

I thought that one reason for doing AVC`s was to make up for taking pension early.

I suppose it depends on what you want from your pension savings, but in my opinion pensions are predominately for providing income rather than lump sums. Therefore AVC's replace the pension benefits that you're giving away by taking it early.

I was hoping that if the value stays the same, then any reduction for taking it early could be filled by my AVC tax free lump sum. If I took my pension early, I don`t see why the fund value would be reduced as it is simply paying out less, earlier, but for longer - so the fund would still need to have the same value.

By taking the pension early, you are effectively reducing the value of it yourself. Ultimately if you want 'full value' don't take it before 60.

[heapsy]

If you take the pension early, does the 5% per year reduction come from the lumpsum, pension, or both ? Also, does the actual value of your pension pot stay the same or get reduced as well (for AVC purposes)?

The whole thing I think. The pension pot is one, until you split it and take a lump sum. By the way, if you are in C section of the pension, there isn't normally a tax free lump sum anyway. Check your statement. If you started AFTER 31st March 1987 you are section C.

[savo]

Im in section C ( have deferred pension as no longer work for RM )

Im certain that you can take up to 25% lump sum tax free if in section C.