Options to increase lump sum

Britalia_2

I have just taken redundancy from Local Government. As a 55 year old femail I can take my company pension. I have a choice to make. In line with Inland Revenue legislation I have the option to increase my lump sum by £12 for every £1 of my annual pension. What are the opinions of you experts out there?? Help please.

jamesd

The cohort life expectancy (xls file) for a 55 year old man is 30 years and for a woman 33 years. It doesn't seem wise to trade in twelve years when half of people will live 30 or 33 years. Unless you plan to invest the money and think that you will be able to get more than 8.3% growth from it. If your pension increases with inflation or includes benefits for a spouse that further increases your target.

What you want it for and what other options you have might make it a sensible choice but we don't know that so we can't comment properly.

If you know that you're likely to die soon it might be worthwhile.

If you're getting over 22,000 a year in pension it might be worth taking a bigger lump sum and investing that inside the stocks and shares ISA tax wrapper to avoid reduction in age allowance for those over 65 but that's a long way off.

If you want it to pay off a mortgage that would be an extraordinarily poor choice compared to just keeping the pension and using the extra pension income to make part of the mortgage payments. Keeping the money in the pension is worth at least 8.3% a year and that's well above most mortgage interest rates.

I do think that it's possible to exceed 8.3% return by investing the money so I might well take the maximum allowed. But that's me. If I was willing to taka a lot of risk by taking the money I might start with a cautious investment like the BlackRock UK Absolute alpha fund for poor market years and go on from there for better years.

Bushey

Britalia wrote: »

I have just taken redundancy from Local Government. As a 55 year old femail I can take my company pension. I have a choice to make. In line with Inland Revenue legislation I have the option to increase my lump sum by £12 for every £1 of my annual pension. What are the opinions of you experts out there?? Help please.

I am about to cross this hurdle having just been "made Redundant" it will be my intention to take the largest Lump sum available, invest it to produce an income to supplement my now reduced pension, each year convert part of the Lump into ISA's gaining a tax free income , over time it should give me a comparable income to what I would have recieved from my pension without the lump BUT and heres the reason I will go this route: in the event of my death at any time my family will be able to inherit the Lump which will be in excess of £100k , whereas if I take the pension and die my wife, if still alive, will only get 1/2 my pension with her widows entitlement. however if she goes before me then when I die my children will inherit nothing from my pension and it will be swallowed up in the pension fund with nothing to show. You might want to take serious professional advice before you decide as everyone has a different outlook to the future.
as they say a bird in the hand..................................