Early Retirement

kidmugsy · 8 January 2018 at 8:00PM

sharpj wrote: »

Calculations suggest ... it would take 10 years or so to get back that difference between the standard and higher lump sums.

Ten years? At age 58? Then take the bigger pension. If he needs some capital in the meantime, borrow it. Borrowing is still said to be cheaper than it's been in 5,000 years.

sharpj · 8 January 2018 at 8:33PM

kidmugsy wrote: »

Ten years? At age 58? Then take the bigger pension. If he needs some capital in the meantime, borrow it. Borrowing is still said to be cheaper than it's been in 5,000 years.

He won't need capital irrespective of which lump sum he chooses he already is mortgage and debt free plus has savings in the bank.

It's just a once in a lifetime chance to take a larger tax free lump sum, against that is the reduced pension v. smaller lump but better pension by around £200 per month- but he will get state pension in 2025 to supplement income.

enthusiasticsaver · 8 January 2018 at 9:28PM

I am in the same position in that I am 58 in few weeks time and retired a week ago. I can opt for a higher lump sum and lower pension but no way will I be doing that as the lump sum is only 12 times as much as the annual reduction. As I am fairly confident of living past 70 I will be taking the 25% TFLS only. We are lucky though in that we still have not touched my DHs lump sum when he retired at the end of 2016 and have plenty of savings and investments.

The only pro I can see to your friend taking the larger lump sum now is if he has debts or a high interest rate mortgage or is unwell. Almost certainly it is poor value to commute more of the pension but it does depend on the pension scheme and commutation rate. Mine is LGPS so as someone else has already said it is just 1 in 12. Unless he will end up with a very large annual pension taking part of his annual pension away may leave him vulnerable on income in a few years time when the lump sum has gone.

sheslookinhot · 8 January 2018 at 10:14PM

If he doesn't need the lump sum then he should take the higher monthly pension.

sharpj · 9 January 2018 at 6:35AM

enthusiasticsaver wrote: »

I am in the same position in that I am 58 in few weeks time and retired a week ago. I can opt for a higher lump sum and lower pension but no way will I be doing that as the lump sum is only 12 times as much as the annual reduction. As I am fairly confident of living past 70 I will be taking the 25% TFLS only. We are lucky though in that we still have not touched my DHs lump sum when he retired at the end of 2016 and have plenty of savings and investments.

The only pro I can see to your friend taking the larger lump sum now is if he has debts or a high interest rate mortgage or is unwell. Almost certainly it is poor value to commute more of the pension but it does depend on the pension scheme and commutation rate. Mine is LGPS so as someone else has already said it is just 1 in 12. Unless he will end up with a very large annual pension taking part of his annual pension away may leave him vulnerable on income in a few years time when the lump sum has gone.

He has another lump due of approx 26k due in 18 months, add to that
the fact he will have considerable savings the lump sum probably won’t be gone anyway.
He is also going to get state pension in 2025.
With his wife’s salary, albeit not huge and some benefit he gets for his disabled son even on the lower pension he would still have an income
close to 3k a month.

It’s obviously a tough one as the higher pension is for life however the savings he has wouldn’t necessarily reduce over time.

sharpj · 9 January 2018 at 9:59AM

Just to give some figures I believe the lower pension is around 18,800 per year opposed to higher pension of 21,300

The difference between lump sums is around 28,000

lotteryman · 9 January 2018 at 12:11PM

Back to what I said earlier

If you can live comfortably on the lower pension and you are otherwise financially stable; you will be getting your state pension (around £500 - £600 pm if full contributions) Enjoy life ... you are a long time dead !

sharpj · 9 January 2018 at 12:32PM

lotteryman wrote: »

Back to what I said earlier

If you can live comfortably on the lower pension and you are otherwise financially stable; you will be getting your state pension (around £500 - £600 pm if full contributions) Enjoy life ... you are a long time dead !

Thanks, and yes we feel we can be perfectly fine on the lower pension.
I actually gave phoned HMRC for a rough guide on tax and she kind of recommended the lower pension route due to what tax I will pay.

kidmugsy · 9 January 2018 at 1:28PM

sharpj wrote: »

It's just a once in a lifetime chance to take a larger tax free lump sum, against that is the reduced pension v. smaller lump.

I can well understand the fancy for having a large capital sum available. But if he doesn't even know what he wants to spend it on is it really worth paying the price in terms of pension given up?

Put otherwise, would he really want the capital sum irrespective of whether he's looking at a pay-back time of 5 years, 10 years, or 20 years?

Anyway the thing he should certainly do is check whether his decision will affect the eventual widow's pension.

sharpj · 9 January 2018 at 1:39PM

kidmugsy wrote: »

I can well understand the fancy for having a large capital sum available. But if he doesn't even know what he wants to spend it on is it really worth paying the price in terms of pension given up?

Put otherwise, would he really want the capital sum irrespective of whether he's looking at a pay-back time of 5 years, 10 years, or 20 years?

Anyway the thing he should certainly do is check whether his decision will affect the eventual widow's pension.

It’s only a pension difference a month of around £150 though based on gov.uk calculations, plus he has his state pension to come in between what would be around 11 years approx to recoup the lump sum difference.

Early Retirement

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