Final Salary Pension

higueron

I am about to receive my final salary pension and have to decide if I want to take a tax free lump sum and a reduced pension or take the full pension my circumstances are I am 60 I have around 150k in savings no mortgage or loans
the lump sum would be 93k and a reduction in pension of £7200 per year
any advice would be welcome.

jackvisual

Wow what a position to be in. As you already have huge savings and no debts, I would say get as much pension as you possibly can. You are in a great position now but nobody knows what the future will bring.

A guaranteed pension for life should in my view always be as big as possible without compromise.

Good luck and wish you all the best in your retirement.

amistupid

higueron wrote: »

I am about to receive my final salary pension and have to decide if I want to take a tax free lump sum and a reduced pension or take the full pension my circumstances are I am 60 I have around 150k in savings no mortgage or loans
the lump sum would be 93k and a reduction in pension of £7200 per year
any advice would be welcome.

Is it an "Hello, hello, hello what's going on here?" pension. If so I've never know anyone not take the lump sum commutation.

dunstonh

any advice would be welcome.

You are not going to get advice here. At least none that is of use to you. This is a once in a lifetime decision where the answer has so many different variables that need to be taken into account.

Basically the answer on whether you should take the lump sum will be either be "yes", "no" or "maybe" based on what you have said so far. Its not possible to be specific though.

Do you really want a load of unknowns on an internet site tell you what you need to do when they dont know your circumstances? Especially when you only get one chance to get this right.

Animal_Jones

higueron wrote: »

I am about to receive my final salary pension and have to decide if I want to take a tax free lump sum and a reduced pension or take the full pension my circumstances are I am 60 I have around 150k in savings no mortgage or loans
the lump sum would be 93k and a reduction in pension of £7200 per year
any advice would be welcome.

I have something similar happening in 10 months.All my retired friends have gone for the option of having the biggest lump sum with a reduced pension.

jetskidia

Its got to be the larger sum everytime!

dunstonh

jetskidia wrote: »

Its got to be the larger sum everytime!

Its not. That can be the worst option or the best option depending on personal circumstances, dependents options and the commutation factor.

mrposhman

I agree with dunstonh, this is a huge decision andone only you can make.

As you have no mortgage or loans you have to ask yourself whether you can get the lump sum to work for you enough, whereby you "earn" more money than you would lose by taking the lower pension.

If the answer is no, then take the higher pension.

If you think you can turn the £93k into a position where you are earning more than £7200 per year on it then take that. Its a big return though that, you will need to return more than 7.7% to beat the dilution in your pension.

Its up to you, as I have no idea what your thoughts are of what you will do with the £93k as everyone is different and would do different things with it, though you have to ask yourself the question over the return you would expect to receive on the £93k.

Animal_Jones

That 7.7% return you will need to beat the dilution in your pension seems a big ask at todays interest rates,perhaps it may be better to go for the full pension after all?.

StevieJ

I guess you do not need the cash (would be one of the deciding factors), probably a good idea to compare it to what could be achieved if you were to buy an annuity to achieve the same benefits eg

http://www.moneyfacts.co.uk/annuities/bestbuys/1/cpa_female_60.aspx

Should help to clarify the decicion in your mind, maybe ring round a few of the insurers. I think that if that pension is index linked it will take some beating. Is the pension/lumpsum all or nothing or can you take a hybrid?

Ian_W

The simple financial answer - could I get more income from the lump sum than the pension -e.g. compared to an annuity or investment or savings returns - is IMO far too simplistic.

As others have said there simply isn't enough info about you and your circs to be too meaningful. Your commutation multiplier is 13 which whilst not generous is fairly reasonable and means provided the lump sum makes at least RPI you'll be 73 before you start to lose out by taking the wedge. At 60 you've a fairly good chance of making it that far -but not as good as if you were 40.
Anything health wise/smoking etc that might make this less likely?

Do you have a spouse or dependents? Does taking the lump affect survivor benefits? Some pensions it does, others it doesn't.

Have you considered tax? Your lump sum is tax free whereas your pension income is taxed. Whilst income from the lump can be taxed you may be able to use a spouses tax free allowance and in any case use ISA's to gradually shelter the lump sum income from taxation.
Have you considered Age Allowance? At 65 you get an extra £3K personal allowance but it gets clawed back at a punitive £1 for every £2 over £21,800 of income including State Pension. You'll already be in that territory if you take the lump sum but I reckon [back of a fag packet!] about £1500 of your unreduced pension will be taxed like that.

Perhaps most important [to me anyway] is how does each option fit in with the lifestyle you want in retirement? Could you live comfortably on the reduced pension? Do you have something you want to do that needs capital, buy a yacht, holiday home, take several exotic holidays a year whilst you're still able to? £100K sounds like a lot of savings but replacing your car several times, home improvements etc can soon eat into it - do you think it's enough for your and yours needs over 20 or 30yrs?

We've just done the same sort of pondering for Mrs W's NHS pension. Because we don't know the future I don't think there is a *right* answer. Only an answer you feel best suits your retirement needs.

BoL whatever you decide.