DB Pension at age 50

C

cotteb

Registered User
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Hi I currently have a DB pension with a previous employer worth €8200 per year and AVCs worth €57000 as I am now age 50 I am looking to take as much as I can from the scheme ! But how is the DB pension value calculated? I am wondering what might it be worth to me if I can withdraw 25% at age 50 ?
 
You will have to take a transfer value from the scheme and move it to a buy out bond, which you can then mature. The transfer value is dependent on many factors, some of them fanciful. Also, if the scheme is in deficit, you will have to take your share of the deficit in the transfer value. You can request the value and see what it's like and then decide.

Steven
www.bluewaterfp.ie
 
cotteb said:
as I am now age 50 I am looking to take as much as I can from the scheme !
Click to expand...

Unless you have a pressing need for the money now, this isn't something I recommend that people do, for many reasons, especially if you expect you'll be working beyond age 60. It concerns me every time I see the online ads from brokers encouraging people to withdraw ("unlock") their pension funds early, when the main motivation is for these brokers to sell an ARF.
 
Hi LDFerguson,

What are the cons for doing this? I appreciate the following

1). Reduced lump sum when you do actually retire
2). I assume if you work beyond 60 the need to take 4% of the ARF annually which will have a tax liability.

Any other cons? Is there any situation where you would recommend it e.g poor performing fund etc..
 
kevgaa said:
Hi LDFerguson,

What are the cons for doing this? I appreciate the following

1). Reduced lump sum when you do actually retire
2). I assume if you work beyond 60 the need to take 4% of the ARF annually which will have a tax liability.

Any other cons? Is there any situation where you would recommend it e.g poor performing fund etc..
Click to expand...

My main reason for reluctance is the tax - paying tax after age 60 on an income that you don't need - losing perhaps up to 52% of this income if you're still working and paying high-rate tax at the time. On a related point, your pension funds are intended to provide you with a lump sum and pension for the rest of your life AFTER you finish up earning a living. Let's say you draw down your lump sum at 50 and continue working until 66 - you've lost growth on the lump sum for 16 years and will draw income you don't need for 6 years, resulting in a smaller pot available at 66 for when you really do need it.

That said, everyone's circumstances are different and every situation needs to be looked at on its own merits. For example, if you have a large expensive debt to repay at 50, or a large expense that will cost you dearly to borrow, then perhaps a pension lump sum would be well employed instead of borrowing. Or if you have an illness that is likely to shorten your life, then by all means retire as early as you can. Or if you have accumulated sufficient assets by 50 that you will be able to live as comfortably as you would like for the rest of your life, then retire early.

Specific circumstances and plans need to be looked at for every situation. I get irritated when I see online ads encouraging people to "unlock" their pension fund at 50 without any reference to their specific circumstances. Some of them claim falsely that this is available because of a "change in the law" which is simply wrong.
 
For anyone looking at potential DB transfers, the Discount rate to used to value the transfer is very penal for anyone who is ten years or more away from retirement. If it were possible to keep the DB pension until you were closer to retirement at age 65 then the transfers should be better due to a more attractive Discount Rate. The two main downsides to this approach are A) you have to wait until you are nearer 65 and B) no one has certainty where interest rates will be at age 65 and this may in a worst case scenario offset all or most of the benefit coming from a better discount rate.
 
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