Another early retirement question.

[skodamanpat]

Deffered section C.

If I decide to take my nr60/65 benefits at 56 I understand I will reduce my pension by 5% per year early and a further 25%, if I take a lump sum.

My question is surrounding the pension supplement, would this be paid from retirement at 56, and if so would that also be reduced by the relevant % and finally does taking a lump sum also effect the supplement?

Tia

[RobertT]

My question is surrounding the pension supplement, would this be paid from retirement at 56

Yes as long as you've left RM employment and until state pension age.

and if so would that also be reduced by the relevant %

It's not a straight percentage per year reduction, so my advice is to have a go on the RMPP calculator to give you an idea of how much the supplement is reduced by.
Just put in some example numbers and see what you come up with.

My workings out using the calculator, suggest the total amount you get in supplement payments if you take your pension early, will be less but not drastically less, than when taking it at NRA. They're just spread over a longer period of time.

and finally does taking a lump sum also effect the supplement?

No but....

My understanding is that if you've already left the company or are intending to do so at the same time as taking your pension, the supplement is factored in when working out the maximum tax free lump sum you can take.

But if you're still working for RM, you won't get the supplement, so it's not factored in.

See page 12 of the RMPP guide to benefits for more info. It's on their website.

[skodamanpat]

Thank you

[tansorboy]

Another question. Do I have to arrange my own annuity or will RM do it for me?

[RobertT]

Another question. Do I have to arrange my own annuity or will RM do it for me?

If you have funds via AVC's, the DBCBS or the RMDCP, buying an annuity is a choice you have with that money.

Scottish Widows may offer the service for AVC's and the RMDCP, otherwise you may have to transfer your cash into a personal pension and purchase your annuity from there.

You can often get a better rate on the open market rather than going with the provider you've saved with.

[Wullie10]

Interesting you don't state if you'll carry on working or not. I know someone who took the lot , remained in RM and got hit with a huge tax bill.

[tansorboy]

I plan to keep working for a year or two but take the 25% lump sum and the rest as an annuity. Apparently the chancellor is thinking about reducing the tax free lump sum.

[heapsy]

I plan to keep working for a year or two but take the 25% lump sum and the rest as an annuity. Apparently the chancellor is thinking about reducing the tax free lump sum.

This hasn't happened. And tbh, I wouldn't worry too much about it. You'll have plenty of notice, if and when they do decide to go ahead. Tbh I'm not sure they will do it, as would be political suicide.

[NWpostie]

Personally I would take the lump sum, split over the 7 years from 60 to 67 and then claim your state pension in place of it.

Annuity market is not that good at the moment

[heapsy]

Personally I would take the lump sum, split over the 7 years from 60 to 67 and then claim your state pension in place of it.

Annuity market is not that good at the moment

I'm going to use my AVCs with my NRA60 pension like thus. I'm also going to use Vanguard LS100 on top of this, until my 67th b'day. I'll take my other RM pensions at NRA.

[RobertT]

I plan to keep working for a year or two but take the 25% lump sum and the rest as an annuity. Apparently the chancellor is thinking about reducing the tax free lump sum.

You haven't said which RM pension scheme you're a member of!
But it sounds like the RMDCP with Scottish Widows to me?

Here's a few thing to consider:

1. There are different types of annuity available, make sure you choose one that suits your situation.
2. You don't have to go with SW, you can shop around for a better deal.
3. The younger you take an annuity, the less you'll get per year because the money has to last longer.
4. Buying an annuity is a one off choice, once you've done it you're locked into it for life.
5. You can take the 25% tax free upfront and leave the annuity until a later date when you'll get a better rate.
6. Annuities tend to die with you unless you have death benefits or a guarantee period, so they're better value for money the longer you live.
7. Annuity rates have increased quite a lot over the last 2 years and are currently higher than they've been for the last 20 years.
8. You can do drawdown instead which means you can still take 25% upfront and then withdraw the rest when you want.
9. Or do UFPLS which is similar to drawdown, which means 25% of each withdrawal is tax free.
10. Both the above enable your cash to continue growing.

This link gives you an idea of the types of annuity available and how much you can expect at different ages: https://www.hl.co.uk/retirement/annuiti ... -buy-rates

This is what you can do with a DC pension scheme: https://www.moneyhelper.org.uk/en/pensi ... on-schemes

If you're actually in the RMSPS/RMPP and you have AVC's, that cash is usually used to fund the tax free lump sum when taking Age60 benefits.

[tansorboy]

Thanks very much for your advice.

[skodamanpat]

Just a thought, annuities are sold by insurance companies, insurance companies make profit.

[RobertT]

Just a thought, annuities are sold by insurance companies, insurance companies make profit.

Annuities are good value if you live to a decent age, but not so good if you don't.

They've been regarded as poor value for years, but returns have increased over the last two years making them more attractive for some.

It's a choice you have!

Whether you go with an annuity or drawdown, the company providing it will take their cut either way!