# Reduced pension by going early

Discussion in 'Retirement' started by 60sunnysmile, Jul 12, 2019.

1. ### 60sunnysmileNew commenter

Hi again. I have been busy with my calculations to allow me to stop teaching at 60 on my final salary NPA 65. Thanks to everyone who contributed to my recent post about AVCs.
I have been reading about some of you who retire before NPA and take a reduced pension and say it works out that you are better off until about your 80's. I think I will need money more before I'm 80 than after, so I thought I would look into this.
I am stuck on the calculation.
Using the 'retire early calculator' on TP I have calculated my pension will be 7,507 if
I claim at 65 and 5,848 if I claim at 60.
7507 - 5848 = 1659 less pension for all time
But I will have an extra 5848 x 5 years = 29,240 from age 60 to 65
I worked out the break even age as follows:
29,240/1659 = 17.5
So I will start to be worse off when I am 60 + 17.5 = 77.5
Can anyone tell me if this is the correct way to calculate this?

2. ### diddydaveEstablished commenter

The 17.5 years is from the time you would start taking it from 65 so 65 + 17.5 = 82.5. (and we've not accounted for tax but also you would get 3 times the 1659 in your lump sum payment at 65 so it's a little trickier if you want to be absolutely precise...)

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3. ### lindenleaStar commenter

Obviously the money is an important factor but there is so much more to consider. Retire early and do a couple of low paid jobs to boost the monthly income. The "how long till I break even" thing is a total gamble - you may not make it till 82.5. Retirement is a big life change. You're well informed about your pension but do you want it now or do you want to stay working? That is what you should be asking.

4. ### 60sunnysmileNew commenter

Thanks diddydave for the correct calculation, and lindenlea for your thoughts. If I am financially better off until 82 (and I will have the SP by then too) as well as having 5 extra years of not worrying about money, I think this is very persuasive. The reason I thought of not taking my pension until 65 was because I thought it would have a significant negative financial impact but now I know it would be worth it financially as well as being good for my well being.
I am not in the pre 2007 pension so I don't get an automatic lump sum and I don't think I would reduce my pension further by taking up to my 25% allowed lump sum. I am not sure what you mean about the tax. Would it be an issue?

5. ### diddydaveEstablished commenter

The tax angle was to do with whether or not your pension went over the tax-allowance (£12,500 this year) as it means that the 'extra' £1659 you mentioned would be less if it were taxed and so would take longer to recoup. With the numbers you quoted it won't make a difference as they are well below the allowance.

For example, if your aged 60 pension was £12,500 then you get it all - no tax.
If your aged 65 pension was £15,000 then you might think you would be getting £2500 more but because that extra is taxed at 20% you are actually only getting, in your pocket, £2000 more - quite a difference!

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6. ### mjfp509New commenter

You would only get taxed if all your pensions were over £12,500, assuming you had no other jobs.

edit: diddydave above beat me to it !

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You may start being worse off at 82, however, there’s something else to consider.

At 65 you’ll be getting a state pension in addition to your teachers pension. If you can survive on the figure you’ve mention from 60-65, then it should be a piece of cake once the state pension kicks in.

Having said that, I think I’d struggle on £5,000 a year, or even £7,000.

8. ### FrankWolleyStar commenter

I don't know all the details here (clearly) - but the amount of reduced pension mentioned by the OP seems low. FWIW I retired at nearly 57 (instead of 62) after 32 years, took the largest lump sum possible, and still get around 15K annually (net after tax).

If the OP has a much lower Teachers' pension, do they have another pension from an earlier career outside teaching?

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9. ### jerreemakerNew commenter

Hi
I also want to retire in that I want carry on working abroad but take my 10 years done in UK working as a teacher in the 90s as a pension. Am I better getting my pension at 60 or at 59 11 months?

10. ### phatsalsEstablished commenter

By taking it slightly early you lose very little by way of annual pension, but you would be able to work as a teacher in the UK without it affecting your pension. If you are working abroad it won't make any difference at all.

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11. ### 60sunnysmileNew commenter

Thanks for all your comments. I am planning on using AVC’s to supplement my £5,848 pension until I am 67, when my state pension of £8,767 kicks in. So from 67 onward I should have £14,615 per year, less tax free £12,500 and the balance of £2,115 taxed at 20% (£423) which is a net figure of £14,192.

I am sure that I can live on that quite easily as I have been saving and will continue to save quite hard so I am already used to it. I actually feel I will be better off as I plan to spend some money on holidays in the off-peak times which as a teacher has not been possible.

My next calculation is how much in AVC’s will I need as a minimum to achieve at least £14,192 per year from 60 to 67.

12. ### 60sunnysmileNew commenter

No I don't have another pension as when I started teaching in 2011 I transferred all my previous pensions into the teachers pensions (which was better by far) which bought me 7 extra years. So my teachers pension is my sum total of pensions from 34 years of working and paying into a pension.

13. ### ikon66Occasional commenter

So 34 years of pension only equates to under £6k per year, surely that can’t be right??

14. ### 60sunnysmileNew commenter

That's what the TP calculators say...
I think its because when I transferred in all my previous private pensions I only had a transfer value of £50k due to "unforeseen market issues" which only bought me 7 years. Also, I want to stop working 5 years before my actual NPA so it is reduced a lot.
That's why I am so keen to ensure I make the most of what I do have and be astax efficient as possible.

That struck me, too.

Part time?

Have you set up an online account so you can check the real figures?

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16. ### SundaytrekkerStar commenter

He said 34 years of working. During that time his pre 2011 service was transferred to TPS as worth seven years. So the maximum TPS years are around 15, if I’ve interpreted it right.

To get an annuity of £14000 would need a huge fund of hundreds of thousands. So you probably want to drawdown capital with a view to it being used up at 66. Therefore 6 x £14000 approx is needed if you want that extra income. Still a substantial sum needed in the avcs.

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17. ### ikon66Occasional commenter

Yeah I saw that, but still only that much. 20+ years of private sector pension only equates to 7 years of TP. Would it not have been better left to bubble away in the private sector ones? All in hindsight I realise though

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18. ### diddydaveEstablished commenter

So you need 7 x (14192 - 5848) which is £58,408.
So long as you are paying income tax at 20% that will cost you about £48,000 (there are limits on how much you can put in each year, and to get the tax relief at 20% you have to be paying tax on that amount)

Once you reach 60 you can take out chunks of money from the AVC pot each year for 7 years, I presume you want £8344 (14192 - 5848).

It's also worth remembering that 25% of each chunk you take out is also tax-free (in addition to your annual allowance of £12,500). So to use you full tax-free allowance you have £5848 from your pension which leaves you with £6652 which you can get by taking out £8869 from the AVC.

Also bear in mind that the AVCs are not a cash pot, they can fluctuate with the market and go down as well as up.

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19. ### emerald52Star commenter

You need approximately £100,000 to generate around £4k of private pension. That’s why TPS is so good.

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20. ### diddydaveEstablished commenter

One other thing to be aware of is that once you start taking money out of your AVC pension pot you are severely limited on how much you can put into a pension thereafter (not that it sounds as though you are planning to but it's still something to consider).

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