Should I take a pension at age 60?

[Dad]

As I undertsand it, all posties have the option of deferring taking their pension at age 60 until they eventually retire. Let's say a postie with 10 years service has built up a pension of £2000 per year at age 60 but intends to carry on working until he is aged 65. As I see it, If he opts to defer his pension he is effectively "saving" Royal Mail £2000 per year until he is 65 (£10,000 over 5 years plus an inflation uplift)) . But will he he ever get this money back? If not, surely it would be madness to defer his pension. I just can't see why Royal Mail offer posties the crazy option of deferring their pension. Or perhaps I'm missing the point .
Can anyone shed light on this please?

[RobertT]

There are pros and cons with deferring a pension, but here's a few points to bear in mind:

1) The pension you built up before 2008 is based on your final salary when you leave RM, so deferring could increase the pension you'll get, assuming we get a few pay rises over the next 5 years.
2) Income for the under 65's is taxed at 20% after the first £7,475, so an £2,000 increase in your income would mean an extra £400 tax burden. So you would only see £1,600 of your pension. NI is not payable on pension income however!
3) After you reach 65 the tax allowance rises to £9,940, so if your income is less than that, you will pay no tax!
4) RM offer the option of deferring pensions because it's in the rules of the scheme.

As a general rule, the answer to whether you should take your pension early/before you retire, is if you don't need the money, don't take it. But with current austerity measures and RM more willing to pay lump sums rather than proper pay rises over the last few years, deferring could well be a bad option.

The important thing is to consider all options and the effect tax, etc will have on your income from 60 - 65 and beyond.

[baldrick]

The only reason I would think of why anyone would want to defer their pension is that they might want to go on to a duty or attendance with a higher pensionable allowance in the 12 months before they take their pension, to boost their pension.
In an MC it might be worthwhile to go onto a late or night shift, and go onto a mech duty with TPM allowance for 12 months to boost your pension.
But if you are staying on the same attendance and duty I can't see why you would want to defer your pension.

[heapsy]

As I undertsand it, all posties have the option of deferring taking their pension at age 60 until they eventually retire. Let's say a postie with 10 years service has built up a pension of £2000 per year at age 60 but intends to carry on working until he is aged 65. As I see it, If he opts to defer his pension he is effectively "saving" Royal Mail £2000 per year until he is 65 (£10,000 over 5 years plus an inflation uplift)) . But will he he ever get this money back? If not, surely it would be madness to defer his pension. I just can't see why Royal Mail offer posties the crazy option of deferring their pension. Or perhaps I'm missing the point .
Can anyone shed light on this please?

Just remember that if you continue work after 60 you will lose the pension supplement completely, even if you only work a year or so. In my honest opinion, if you intend to carry on working I would still take the final salary pension. This would more than replace the supplement you had lost. Think of it another way, if you take it at 60, although it is subject to taxation, it is like getting an extra 5 years pension from the company, as if you had lived 5 years longer. Or a big pay rise. Incidently, you can take the second part of your pension at 60. Thats the first 2 years of the CARE scheme we are now in. Just check with pensions that if you do take it, that you can still contribute to the 3rd part until your retirement. Remember also, that if you carry on working, you are building up the 3rd element of your pension also, for when you hit 65. If you are one for the overtime, just think, maybe there's no need to do as much if you took the pension. A pensions expert once said on tv that there is no point in defering your pension, once you hit the age you can take it, as long as you are not penalised for doing so. In this case you would not. I wouldn't worry too much about losing some to the tax man, think of what you have gained, rather than the bit he will take away. Sorry if the answer is a bit long but I understand the pension a little more than many who post on here, it seems. Hope that helps.

[RobertT]

Just remember that if you continue work after 60 you will lose the pension supplement completely, even if you only work a year or so.

You will actually get the pension supplement up to state pension age should you leave RM before that date!

Incidently, you can take the second part of your pension at 60. Thats the first 2 years of the CARE scheme we are now in. Just check with pensions that if you do take it, that you can still contribute to the 3rd part until your retirement. Remember also, that if you carry on working, you are building up the 3rd element of your pension also, for when you hit 65.

Or to put it another way, if you want to carry on working you can take the pension you've built up before April 2010 at 60, but the benefits you build up after that date are to be taken at 65.

A pensions expert once said on tv that there is no point in defering your pension, once you hit the age you can take it, as long as you are not penalised for doing so. In this case you would not.

Apart from paying more tax and not getting the pension supplement!!!!!

Sorry if the answer is a bit long but I understand the pension a little more than many who post on here, it seems.

[heapsy]

True, you do get the supplement if you leave before or retire at 60 but as I stated, only if you leave. There are some people on here who are not grasping even the basics on their pension deal.
I think you should be directing your answer more towards Dad as he obviously is not sure of the options. More tax would be payable if you carried on working and drew the final salary pension but for some it might get them out of a hole. I know somebody in such a situation due to divorce and remarriage and having reached 60 finds himself with about 40k of mortgage still to pay. At least it gives people a little more flexibility than before.

[platform béalfeirsde]

What is the pension supplement?
Does this still apply?
Does it come into play at 55 (if taking pension early) or only from 60 to state pension age?

[RobertT]

What is the pension supplement?

It's an addition payment that is paid to Section C members between taking their RM pension and reaching state pension age.

Does this still apply?

It does for people in Section C.

Does it come into play at 55 (if taking pension early) or only from 60 to state pension age?

As far as I know it would still be payable if you take your pension at 55 but would be reduced in the same way as your main scheme benefits.

More info can be found by looking at the relevant guide:
http://royalmailpensionplan.co.uk/55/pensions-brochures" onclick="window.open(this.href);return false;

[platform béalfeirsde]

Thank you for the reply RobertT.

One more - What is GMP and how does it work/affect the pension?

[RobertT]

Thank you for the reply RobertT.

One more - What is GMP and how does it work/affect the pension?

Members of the RM Pension Plan are contracted out of the State Second Pension formally known as SERPS, as a result we pay lower NI contributions, 10.6% instead of the usual 12%. In return for this rebate we effectively get more RM pension instead, this is known as the Guaranteed Minimum Pension.

However, contracting out for all workplace/salary based pensions will cease in April 2016, and the rate we pay NI will increase to 12% and we will start to build up more entitlement to the new ‘flat rate’ state pension instead.

I hope that makes sense.

[platform béalfeirsde]

Members of the RM Pension Plan are contracted out of the State Second Pension formally known as SERPS, as a result we pay lower NI contributions, 10.6% instead of the usual 12%. In return for this rebate we effectively get more RM pension instead, this is known as the Guaranteed Minimum Pension.

Is the GMP part included in the annual Pension statement that we receive?
Would it amount to much/are there any examples?

[RobertT]

Is the GMP part included in the annual Pension statement that we receive?

Yes.

Would it amount to much/are there any examples?

The amount would be based on service and pay so will vary from person to person. In practice many people will have built up a certain amount of GMP from their RM pension and/or other contracted out pensions and many people will have some S2P/SERPS aswell from jobs where they were contracted in. So it’s very much an individual thing.
Some people may also have contracted out defined contribution pensions from previous jobs where their NI rebate plus tax relief was invested into a personal/stakeholder pension.

For some basic GMP info see these:
http://en.wikipedia.org/wiki/Guaranteed_Minimum_Pension" onclick="window.open(this.href);return false;
http://www.sppa.gov.uk/index.php?option ... Itemid=103" onclick="window.open(this.href);return false;

If you don’t know what your state pension entitlement is including any S2P, I suggest you get a forecast:
https://www.gov.uk/state-pension-statement" onclick="window.open(this.href);return false;