Help!-Lump sum or bigger pension?

stodgy88

come on wakey wakey -someone must be able to help,i thought that was the idea-very dissapointed

markr007

Two theories I can think of:

1. Different retirement age
2. It wasn't actually as good as it looked because some of the cash was as of right

e.g. Entitlement is £2000 pa + £6,000 cash

Can commute £500 at 12 to 1 = £6000 cash

£1500 +£12000 cash

£12000/500=24 so commutation factor looks high. Extreme example and just guessing. Ultimately the commutation factor is what they tell you!

stodgy88

thanks-if i take early pension i understand that my weekly pension will be reduced by 5% per year ,will the lumpsum quoted on my last illustration also be reduced by the same 5%-(the figures quoted in my illustration are for a deferred pension ,so no more contributions will be made)-cheers

Goldenyears

stodgy88 wrote: »

i have been offered by royalmail (IN POSS) AROUND 12-1 FOR PENSION TO LUMPSUM ,NOT THE 18-20 TIMES OFFERED TO MICHAEL READY AND TR@CKER (BOTH WITH SAME SCHEME )ANY IDEAS WHY THIS WOULD BE -THANKS

It's because the original poster wanted to convert lump sum to extra pension and not the other way round, as you want.

I don't think anyone in this thread realised that the rates for commutation and inverse commutation are not the same in public sector final salary schemes. to get £1 pa. extra pension it costs (about) £20 lump sum at age 60. This assumes that it is an older scheme which offers a lump sum by default. The modern schemes don't offer it by default, which is I think where the confusion arises, since there is no lump sum to give up. You can only go one way ie. usually £1 pa sacrificed to get £12 lum sum.

Goldenyears

stodgy88 wrote: »

thanks-if i take early pension i understand that my weekly pension will be reduced by 5% per year ,will the lumpsum quoted on my last illustration also be reduced by the same 5%-(the figures quoted in my illustration are for a deferred pension ,so no more contributions will be made)-cheers

As replied in another thread. Probably a bit less than 5% per year.

stodgy88

this is a deferred pension (not a estimate of future earning ,so money is already in pot -why should it be reduced?- i understand weekly pension been reduced because i am taking it early , but ive already paid in to plan to get the lumpsum figure thanks

MrChips

The lump sum is payable from your Normal Retirement Age (usually 60 or 65).

If the scheme is funding for benefits assuming that it will get investment returns of, say, 6% per year on it's money, then if you take it one year early then it will only have (roughly) 94% of your lump sum in the scheme. Hence it is reduced if you take it early.

This is a simplified example and doesn't take account of the fact that your deferred lump sum gets annual increases each year before retirement, but you get the idea.

stodgy88

thanks- the fund is a closed final salary with royalmail,and my annual lumpsum increase for last year was £800-dont know if this helps-but thanks anyway

cyclonebri1

Yes I think the previous poster got it right, you have to realise all potential rewards are just that, they rely on payment up to an alloted retirement, or reduced benefits if settled sooner;)

perception99

Hi
I too am leaving Royal mail after 29 years. Pension quote £13136, lumpsum £39410. I am 55 (56 in April). The commutation figure i have been informally quoted is 20:1. Do you think a bigger lump sum is a better option. Total fund vale c£320000 therefore I think I could take up to £80k. Am I right and which is the better option