Real live situation: Retire now or wait to 65

R

Red

Guest
Exercise:
I am age 54, and in good health TG.
I have worked for a company for 35 years and in DB pension scheme. Max pension is 40 over 60 or two thirds. I am on €42k p.a. I am offered €104 k to retire now plus pension(35 over 60 of €42k). Other option is to stay on until age 65 and get full pension. If I retire now I will get OAP, otherwise no OAP as DB pension is coordinated with state pension. I have €20k in AVC's.
Should I go or should I stay.
(a)Discuss
[100 marks]
(b)Should I commute part of pension, to get lump sum.
[30 marks]
(c)What would you do.?
[20 marks]
Rgds
Red
 
Hi Red,

What is the financial standing of your company? What is the financial standing of the the DB fund? Is there a possiblitity that you might get alternative employment?

If I retire now I will get OAP
I might have misundestood but what I think you are saying here is that if you retire now your pension will not be reduced by the OAP but that if you wait till 65 it will? Perhaps you could clarify this?

ajapale
 
ajapale
"What is the financial standing of your company? What is the financial standing of the the DB fund?"
Both good at present.
Is there a possiblitity that you might get alternative employment?
Yes , but more likely at €20k, or even less. I have not tried yet.

"I might have misundestood but what I think you are saying here is that if you retire now your pension will not be reduced by the OAP but that if you wait till 65 it will? Perhaps you could clarify this?"

Pension is coordinated with state pension, so if I wait to normal retirement age, the pension will be "reduced by 1 over 40th of the single person's Social Insurance Pension for each year of membership of the scheme"

Rgds
Red
 
or...

"the 104K is by way of redundancy"

It is voluntary severance.

Red
 
what I think you are saying here is that if you retire now your pension will not be reduced by the OAP

Hi red,

Are you sure that if you retire now that the OAP isnt deducted from your pension?

ajapale
 
"Are you sure that if you retire now that the OAP isnt deducted from your pension?"

Yes. As I understand it at the moment, and I have to investigate further, I become uncoordinated, so I get the full OAP, as well as the company pension.
Rgds
Red
 
Couple of issues.

1. If you stay on, your eventual benefit will be based on your salary when you eventual retire. Hence, if you were to expect big increases in pay by staying on you could be shooting yourself in the foot slightly.

2. Will your pension increase in retirement. If not, the reality is that your pension may not be worth a whole lot once you get to 65.

3. You ask about cash vs pension. Depends on what value you are getting for the pension you cash in. By and large most people take the highest tax free lump sum possible. Your pension is taxable.

I would be asking the trustees for advice or to make an expert available to you. You need to do a cash flow exercise and see if it is worth your while.

What are your plans if you stay on? Do you want to work to 65? Do you need to work to 65? If you go looking for a job are you likely to get fixed up? What price do you put on the social interaction you have in your present workplace?

Loads of questions and the financial aspect of it is only part of the answer.
 
As Alan points out, it's not just a financial decision. I would probably take independent actuarial advice on the proposal. But here are some numbers.

Retire at 65
Pensions expected then: 33k
(final salary: 72k@40/60 = 47k less 14k OAP)

Retire now
Pension 24k
Alternative job say: 20k

Tax free lump sum: 104k

So you are getting €104k now tax free in exchange for a taxable loss in pension of €9k starting in 11 years.

In 11 years, the €104k will be worth €180k. (if it grows at 5%)

So you are exchanging 180k net for about 7k net per annum for life. I would take this option if the finances were the only consideration.

Brendan
 
ajapale/Alan/Brendan,
Thanks for the questions,comments and figures.
Everybody got full marks.
I had already looked at the situation from most angles and decided myself to go for voluntary severance, but I was very interested all the same in your views.
35 years is long enough to be with one company. Going now opens up new opportunities i.e. further education(Masters maybe),part time work(a few months here and a few months there),more time for foreign travel(if I can afford it), less pressure.
I have no mortgage and my wife works.
I will retire now and get my pension and I will get the OAP as well when I get to that age. I can pick up a job to boost the pension. Life is too short.
Thanks again
Red
 
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