Q. I’m a 57 year old dentist and am planning to retire when I’m 58. Should I take my NHS pension at 58, or am I best waiting until age 60?
A. You’ll be aware that there is a penalty for taking the benefits from the pension prior to age 60. If you retire at 58, you’ll receive an income of 89% of the accrued pension to that age. The tax free lump sum will be reduced by 7%. (Click here for Source).
Let’s look at an example.
If you were expecting an NHS pension at age 60 of £40,000 pa (with full service to that date), it is reasonable to assume that you would receive a pension of £37,500 pa at age 58 prior to any penalty being applied. After educing this amount by 11%, you would receive £33,375 pa.
What we then need to do is compare the two. The question is: should you retire at 58 and defer taking the pension until age 60 (which means that no penalty would apply).
If you take the reduced income at 58 you will, of course, enjoy an income or an additional 2 years. We need to calculate the ‘equilibrium age’ when the two amounts cross over. In your case, that age is 82.
If you live beyond this age, you would be better off deferring taking the income. Then again, if that income from 58 to 60 means you can achieve any of your lifetime/retirement goals you’ll need to take those factors into account.
Enjoy your retirement!
