Early Retirement - pro's and con's

[Trainshed Terry]

My Story.

 

I worked for my last employer for 23.5 years, but I have a learning disability and found it hard to hit the delivery targets, so between the union and the management they kicked me out the door as the reasonable adjustment I had requested under the guide lines of the equality act 2010 where put in place for six months then withdrawn by management as it was to costly to keep them in place.

 

So between the union and the manager at that time they fudged, and worked a plain to kick me out of the door on health grounds, and the last thing I said to the union rep was "Know you kicked me out of the door I shall find it hard to find employment". It has come true.

 

I shall be 58 this year, but if I was to take my pension early I shall have to pay back 5% of every year’s services that I have not worked to the pension company till the age of 65. So taken my pension pot early is not a option for the time being.

 

I am currently struggling financially currently. As for finding some form of employment is just a joke as I have applied for many different jobs all with no success.

 

I keep think of going down the route of using my house as I paid the mortgage off. I think it’s called negative equity release, but I understand that there are pit falls going down that route.

 

AS for a support network it seems to have dried up for the know.

 

I have been diagnosed with moderate to mild depression; I have appointment with the doctor late this month. I lost my mojo for the things that use to bring me pleasure.

 

I have had a long term goal that is to relocate to the west country but I fear that has to be scraped until I get my first pension from my former employer.

 

I really do not know which way to turn or who to talk to about the situation.   

 

Terry.

 

[Dungrange]

44 minutes ago, Trainshed Terry said:

I shall be 58 this year, but if I was to take my pension early I shall have to pay back 5% of every year’s services that I have not worked to the pension company till the age of 65. So taken my pension pot early is not a option for the time being.

 

I am currently struggling financially currently. As for finding some form of employment is just a joke as I have applied for many different jobs all with no success.

 

I keep think of going down the route of using my house as I paid the mortgage off. I think it’s called negative equity release, but I understand that there are pit falls going down that route.

 

AS for a support network it seems to have dried up for the know.

 

I have been diagnosed with moderate to mild depression; I have appointment with the doctor late this month. I lost my mojo for the things that use to bring me pleasure.

 

I have had a long term goal that is to relocate to the west country but I fear that has to be scraped until I get my first pension from my former employer.

 

I really do not know which way to turn or who to talk to about the situation.   

Terry,

 

I'm not really qualified to advise, but I don't think that an equity release loan sounds like the right idea if you'd like to move from Essex to retire in the West Country.  My understanding is that with an equity release loan you effectively hand over the property that you own in return for some capital and the right to continue living in the property.  When you pass away, the Equity Release company can then sell the property.  That doesn't fit if you plan to move.

 

You say that moving to the West Country is a long term goal, but if you can't find work locally, what is stopping you making that move now?  Why does it have to be a long term goal?  I guess the question is whether employment prospects in the West Country are better or worse than they are in Essex and whether house prices in Essex are higher or lower than where you would like to move to.  I don't know very much about either area.  I guess my question is whether you could sell your property in Essex, buy something smaller in the West Country and have some cash left over?  You would then look for a new job in the West Country.

 

As for depression, I fully sympathise with the lack of mojo and the fact the you don't feel as motivated or gain pleasure from things that you once did.  Your doctor may describe antidepressants, but whilst they do moderate the lows, they also tend to take away the highs as well and of course they don't actually deal with the circumstances that cause you to feel depressed.  That needs you to identify what is actually causing you to be depressed.

[34theletterbetweenB&D]

56 minutes ago, Trainshed Terry said:

...I keep think of going down the route of using my house as I paid the mortgage off. I think it’s called negative equity release, but I understand that there are pit falls going down that route.

 

As for a support network it seems to have dried up for the know.

 

I really do not know which way to turn or who to talk to about the situation...

Exactly as Dungrange: do not go anywhere near equity release. Do you have a Citizen's Advice Bureau locally?

 

I would guess that what you most need immediately is positive social contact. Don't know your location at all, but hopefully there are churches nearby. Most churches are very effectively networked and should be able to help you find social activity and human kindness.  You were brave enough to post about your situation, but this is far better done with a real human being face to face, just got to walk through the door: which is difficult.

[Colin_McLeod]

Would it be possible to approach your pension provider and instead of paying back contributions, would they pay you a reduced pension starting right away?  That would be the more normal arrangement.

 

Bit late now but your union should have pushed for an ill health retirement instead of just letting you leave.

 

Equity release is not all bad but you need good advice. Basically you mortgage your house and the mortgage loan and interest is paid back when you die. 

 

If you plan to relocate, that could be your solution. If you can find a house that you can buy for less than you can sell your own house for, then you will have some change to keep you going.

 

That's what I did. I sold in Cork City for €240k and purchased in the countryside for €155k.  After paying the balance of my mortgage, legal costs and stamp duty I was left with a nice lump sum and never looked back.  A good estate agent can advise you on both the sale and the search for another property.

 

Best wishes

Colin

 

Edited March 1, 2020 by Colin_McLeod

[The Stationmaster]

Terry,

 

The pension situation seems a little odd when you talk about having to pay back something.  The usual situation with , I think, every fund, I have come across is that your pension is reduced by a particular amount (usually expressed as a percentage) for each year that you retire early.  I took my BR pension 8 years before my pensionable age and taht was how it worked there - I lost so many percent for each year I went early and that percentage rate rose as the number of years increased.

 

What I wouldsuggest is that you contact the pension fund and ask them a series of questions because I presume that as you have left early your pension will in any case be frozen at the amount of contributing years you achieved;  You need to ask what your pension would be if you wait until your fund pensionable age before you draw the pension and what the pension would be if you started it now (as you legally can - depending on the fund rules).  If it is a money purchase fund then the amount you have credited will be all you will ever have and it then depends on how the money in your fund is used to create an annuity.

 

In simple terms you need to ask questions of the pension fund

[Trainshed Terry]

Quote

What I wouldsuggest is that you contact the pension fund and ask them a series of questions because I presume that as you have left early your pension will in any case be frozen at the amount of contributing years you achieved;  You need to ask what your pension would be if you wait until your fund pensionable age before you draw the pension and what the pension would be if you started it now (as you legally can - depending on the fund rules).  If it is a money purchase fund then the amount you have credited will be all you will ever have and it then depends on how the money in your fund is used to create an annuity.

 

I did!, the response from the pension fund people have said that they will let me now on how much I shall get unless I sign the pension out with the reduction and how much I shall have to pay tax on the reduced amount.

 

Thank You all for the postive response that have be posted.

 

Terry.

[Barry O]

You don't need to sign anything. If you want the figures they have to give them to you but they may charge if you ask for the info more than once in a 12 month period.

 

While you can take pensions early the amount they reduce it by from the date you should be taking it can be quite a high percentage.

 

Have you contacted pension wise as they are here to help?

[jjb1970]

1 hour ago, Trainshed Terry said:

 

I did!, the response from the pension fund people have said that they will let me now on how much I shall get unless I sign the pension out with the reduction and how much I shall have to pay tax on the reduced amount.

 

Thank You all for the postive response that have be posted.

 

Terry.

 

I think you need professional advice, start with citizen's advice or there are charities that specialize in money matters. However given the financial implications it will be worth considering paying for professional advice if necessary.

[polybear]

3 hours ago, Trainshed Terry said:

My Story.

 

I worked for my last employer for 23.5 years, but I have a learning disability and found it hard to hit the delivery targets, so between the union and the management they kicked me out the door as the reasonable adjustment I had requested under the guide lines of the equality act 2010 where put in place for six months then withdrawn by management as it was to costly to keep them in place.

 

So between the union and the manager at that time they fudged, and worked a plain to kick me out of the door on health grounds, and the last thing I said to the union rep was "Know you kicked me out of the door I shall find it hard to find employment". It has come true.

 

I shall be 58 this year, but if I was to take my pension early I shall have to pay back 5% of every year’s services that I have not worked to the pension company till the age of 65. So taken my pension pot early is not a option for the time being.

 

I am currently struggling financially currently. As for finding some form of employment is just a joke as I have applied for many different jobs all with no success.

 

I keep think of going down the route of using my house as I paid the mortgage off. I think it’s called negative equity release, but I understand that there are pit falls going down that route.

 

AS for a support network it seems to have dried up for the know.

 

I have been diagnosed with moderate to mild depression; I have appointment with the doctor late this month. I lost my mojo for the things that use to bring me pleasure.

 

I have had a long term goal that is to relocate to the west country but I fear that has to be scraped until I get my first pension from my former employer.

 

I really do not know which way to turn or who to talk to about the situation.   

 

Terry.

 

 

It sounds to me like your Company and your so-called Union have treated you appallingly - how recently did all this happen, or is it on-going?   If you'd been with that employer for over 23 years it's not like they didn't know and understand any limitations you may have; I suspect it's more a case of them shifting the goal posts unreasonably.

Did they provide access to a Solicitor at their expense prior to you agreeing to all this, so you may have unbiased advice as to the implications?  Bearing in mind your learning difficulties they certainly should have, otherwise you could argue you just didn't understand what was going on.

As for the phrase "pay back 5%", I think what you actually mean is the amount that you will receive will actually be reduced by 35% (i.e. 7 years early x 5% per year).  My own pension has a similar  basis; I'm lucky to still be in a final salary scheme - I'm banging out ten years early at 55 and will lose 30% (3% per year).  The 5% imposed on you seems pretty harsh bearing in mind the circumstances, though I note you lost your job on health grounds, which isn't the same as retirement on ill-health terms.  Do you work for a large company, and did they make any proper effort to find an alternative position for you that you may have been able to do?  (though it's pretty obvious to me that after 23 years you were doing your own job ok....).

 

The lads at work go a bit crinkly when I mention I'm losing 30%, however when I point out I'll be getting ten years of pension payments early (i.e. 55 to 65) and in order to make that amount of money back (based on retiring at 65) I'd be well into my 80's.  Worth bearing in mind in your case too - taking your pension at 58 will result in a smaller pension, but it's money now - seven years early.  Don't forget taxation though - you may lose some of your pension each month to the taxman.  And if you are in receipt of any state benefits that are means tested (i.e. ones that may be reduced or lost once you get an income - i.e. your pension) then don't forget this.

 

Having a pension income doesn't stop you from still looking for work though, so bear this in mind too.

It sounds like you need someone sensible and trustworthy to advise you, who understands such matters - is there anyone you can ask?

And finally, as mentioned, take very great care with Equity release schemes.  You might get money, but no longer own your house - but still have to insure it, maintain it, repair it etc etc.

[brianusa]

Reverse equity, as its called over here, is not really the answer.  Might be useful in the right situation but its better left alone.  When I retired I was three years younger than yourself and our long term goal was to move from California, we made out on our house value and were able to sell it and pay cash for the new home,  Not in another county, but in another state.  Not unlike your moving from Essex to the West Country, but we moved to a cheaper state whereas the west country home prices could be dearer judging by the asking price of houses there.  Once you have decided, go for it as moving is not for the fainthearted and gets harder as you get older.

    Brian.

[Dungrange]

2 hours ago, Barry O said:

Have you contacted pension wise as they are here to help?

 

Just looking at the Pension Wise website (https://www.pensionwise.gov.uk/en) it looks as though they can only advise on options in relation to a defined contribution scheme (also known as a 'money purchase' scheme) whereas it sounds as though Terry has a defined benefit scheme (ie either a final salary or career average salary scheme).  That therefore puts this into the area for requiring personal advice from a qualified adviser rather than a phone service where someone can talk through the pros and cons of all the options for those with a defined contribution scheme.

 

I think Polybear is correct and that what Terry has referred to as "pay back 5%" is actually a reduction in the amount that Terry would have been entitled to had he worked to 65: a reduced pension for retiring early.  As others have said, that's what would seem to be the norm and is my understanding of the way most schemes work.  Perhaps that hasn't been explained very well by the pension provider - ie Terry has misunderstood the terminology used or the way it has been presented.

 

To try and explain, had Terry worked for 23.5 years at a salary of £20,000 per annum, he might have expected a pension of say 23.5 / 80 * £20,000 = £5,875 per annum starting at age 65.  However, if he was to retire at age 58 (7 years early), then he would only receive 65% of that pension - ie £3,819 per annum (100% - 7 * 5%).  Taking the reduced pension now would give Terry £26,731 in pension payments before the age of 65 (ie 7 * £3,819) but means that he'd be getting about £2,000 per annum less from age 65.  How these sort of figures fit in with the rest of Terry's income is where an adviser is required.

 

I would have expected the pension company to provide Terry with a breakdown of what he would receive if he was to take his pension now, but it seems as though they must think that they have provided this information and are therefore taking Terry's request for more information as an instruction to take the pension early hence the statements about signing up to the reduced pension.  That doesn't seem very satisfactory, but I'm not sure what the correct question to ask the pension provider is.  Is there a specific name for a future benefits quotation? 

[polybear]

7 hours ago, Dungrange said:

I would have expected the pension company to provide Terry with a breakdown of what he would receive if he was to take his pension now, but it seems as though they must think that they have provided this information and are therefore taking Terry's request for more information as an instruction to take the pension early hence the statements about signing up to the reduced pension.  That doesn't seem very satisfactory, but I'm not sure what the correct question to ask the pension provider is.  Is there a specific name for a future benefits quotation? 

 

I think the term "Pension Prediction" should do the trick - one for retiring at 65, and one for (say) 58.

[TheSignalEngineer]

2 hours ago, polybear said:

 

I think the term "Pension Prediction" should do the trick - one for retiring at 65, and one for (say) 58.

I got a pension estimate each year from my early 50s for retire now or work to retirement age. Factoring in being debt free as we could pay off the mortgage with a lump sum and not touch our existing savings and changes to outgoings I tracked the optimum date. It turned out to be around 57. At 56 I calculated the drop in disposable income per hour working and commuting and it worked out at about £1 closing quickly on zero, so I picked a convenient date and put my notice in.

 

[Dungrange]

3 hours ago, polybear said:

 

I think the term "Pension Prediction" should do the trick - one for retiring at 65, and one for (say) 58.

 

That may be the correct term - I'm just wondering if different words have different meanings.  I've seen "Pension Forecast" used in relation to the UK State Pension and "Pension Illustration" used in relation to Self Invested Personal Pensions (SIPPs).  I was therefore wondering if "Pension Quotation" or whatever term Terry has used is taken to mean something else in relation to company pension schemes.

 

I guess the other potential source of misunderstanding is, does that "Pension Prediction" age have to be a certain time in the future - ie at least three or six months from now.  That is, if Terry was to ask for a prediction as to what he would receive at say 59 and 65 then he would get an illustration of likely amount paid at these ages, but asking for one now (at his current age), means that the only way for the provider to give an exact figure, as opposed to an approximate one at some future date, is to ask Terry to sign up to the reduced pension.  I seem to recall reading that you can't get a State Pension Forecast within about three months of reaching State Retirement Age.

[polybear]

14 minutes ago, Dungrange said:

 

That may be the correct term - I'm just wondering if different words have different meanings.  I've seen "Pension Forecast" used in relation to the UK State Pension and "Pension Illustration" used in relation to Self Invested Personal Pensions (SIPPs).  I was therefore wondering if "Pension Quotation" or whatever term Terry has used is taken to mean something else in relation to company pension schemes.

 

I guess the other potential source of misunderstanding is, does that "Pension Prediction" age have to be a certain time in the future - ie at least three or six months from now.  That is, if Terry was to ask for a prediction as to what he would receive at say 59 and 65 then he would get an illustration of likely amount paid at these ages, but asking for one now (at his current age), means that the only way for the provider to give an exact figure, as opposed to an approximate one at some future date, is to ask Terry to sign up to the reduced pension.  I seem to recall reading that you can't get a State Pension Forecast within about three months of reaching State Retirement Age.

 

My Pension is such that I can get a formal set of figures that are valid for a set period of time (3 months?).  So I won't know exactly what I'll get until nearer date (which is soon) as the formal set I have are now expired; since it's a Final Salary scheme it should be very close though.

It's also worth remembering that many costs when working (e.g. petrol) will most likely be cut considerably, but others may well go up (e.g. gas and leccy) as you are at home much more.

[dj_crisp]

For a Defined Benefit scheme you should just ask for an early retirement option which as mentioned earlier should be free (well at least one per year).

 

My previous contract was building models to value DB schemes and tbf the figures they quote you should be at fair value. (the example above shows why it's reduced and there are many more complexities that influence the final amount) The problem is the benefits of each scheme vary massively and there are alot of government rules so the values quoted are often hard to understand. And some of what constitutes fair value is down to the trustees of the scheme. I expect there are a set of early retirement factors that are loaded onto an admin system to provide quotes etc. to allow easy quotation. These should be updated reguarly but some schemes might not.

 

Should you choose to retire you can always opt for a 25% tax free cash sum.... but at a simple level means you've reduced your income by 25%. I've no idea on tax and the amounts you'd have to pay if you worked and drew your pension etc. so always a great idea to get proper professional advice (certainly not from me!!)

 

Good luck!

 

Will

 

[Siberian Snooper]

The tax calculation for pensions is the same as any other income i.e you pay tax at the appropriate rate for anything over your tax allowance. For the last 5 years I have only drawn sufficient to avoid paying tax. Do NOT take all your pension as a lump sum. I transferred two small pensions into one with standard life and I draw down an amount that is just under my tax threshold, this upcoming financial year will be the last time I can do it, as from next year I will receive my state pension and with my MOD pension I will be over the tax threshold, so whatever is left to draw down will be taxable. Please take independent financial advice, but ensure that they are financially accountable, as there are plenty of rogue advisers out there.

 

 

[polybear]

1 hour ago, dj_crisp said:

Should you choose to retire you can always opt for a 25% tax free cash sum.... but at a simple level means you've reduced your income by 25%. I've no idea on tax and the amounts you'd have to pay if you worked and drew your pension etc. so always a great idea to get proper professional advice (certainly not from me!!)

 

 

The amount my pension would increase by, assuming I didn't take the full 25% lump sum, means that (after tax) it would take 43 years to recover the lump sum value based on the reduced pension figure had I taken the lump sum (hope that makes sense!).  And that assumes no subsequent investment of said lump sum....

Any guesses which way I'm gonna jump.....

 

Edited March 2, 2020 by polybear

[micklner]

Take the lump sum or lose it , being realistic you could be dead tomorrow. You pay tax so what we all do!! , enjoy the money while you can.

[Ray H]

I was advised to take all you can as soon as you can for that very reason. Once you're gone its too late to benefit from it.

 

Try and find an Independent Financial Adviser to guide you down what otherwise can be a very slippery slope.

 

All the best whatever you choose to do.

[TheSignalEngineer]

59 minutes ago, polybear said:

 

The amount my pension would increase by, assuming I didn't take the full 25% lump sum, means that (after tax) it would take 43 years to recover the lump sum value based on the reduced pension figure had I taken the lump sum (hope that makes sense!).  And that assumes no subsequent investment of said lump sum....

Any guesses which way I'm gonna jump.....

 

My policy would be to take as much as you can as soon as you finish. I saw too many people work into their 60s then die not long after finishing. Unfortunately I don't think I or many others will manage my Dad's performance where he left the Fire Brigade on an index linked pension after 25 years service then lived on it for 42 years.

[polybear]

48 minutes ago, TheSignalEngineer said:

My policy would be to take as much as you can as soon as you finish. I saw too many people work into their 60s then die not long after finishing. Unfortunately I don't think I or many others will manage my Dad's performance where he left the Fire Brigade on an index linked pension after 25 years service then lived on it for 42 years.

 

This takes some beating:

http://www.nbcnews.com/id/5106000/ns/us_news/t/last-widow-civil-war-veteran-dies/

 

 

[MJI]

I am in mid to late 50s and I am getting worried that my pension will be too small.

 

I will probably be working past retirement to make sure I will be OK.

 

One of my bosses is part time (3 day a week) at 71.

 

I reckon I will work full time to 68 then play it by ear.

 

And I was told when in my 20s, retire at 60.

[QWILPEN]

Well got the VR outcome today and I leave at the end of June after 39 years 10 months

 

very happy this evening

 

 

[polybear]

Well, one thing's for sure if you're about to retire....

 

It's a crap time to have a Private Pension, Share Option Scheme or savings in the Stock Market