advice on retirement

league

hi I need some advice I am retiring in a couple of months, I am in a final salary scheme ,I have 2 options one to take a bigger lump sum about 80000 a year, and take a reduced pension reduces by about 2000 a year. or a pension of 13000 and lump sum of 40000 ,if anyone is a a pensions advisor can offer any help or is it best to see an advisor. any help appreciated regards league

exil

Doesn't really need a pensions adviser .....

you are giving up £2,000 a year in pension in return for a £40,000 bigger lump sum.

So, if you live for 20 years or more after retiring, you are better off taking the larger pension. If not, take the larger lump sum.

Of course you don't know at this point how long you're going to live - at least I hope you don't - but in rough terms if you are 60 now you can expect to live 20-25 years depending on gender and health At 65, it's 17-22 years

If you have a particular reason for wanting more money now - eg to pay off a mortgage - then it would be better to go for the bigger lump sum.

On a personal note I'd always prefer to take the money now all other things being equal....

LizzieS_2

The pension is taxable income whereas the lump sum should provide interest if invested.

The pension may increase each year, so taking away £2000 also means you do not get increases on that £2000.

£2000 reduction to pension may also mean a reduction to a potential spouse's pension too.

Which is the best is really down to how long you/spouse live, annual increases, tax and potential investment - too many variables to ever know the best overall payout.

It is really down to how you want to live in retirement and how each choice would help you attain that.

dunstonh

It is not as simple as just seeing what the difference is. You need to take into account your personal financial circumstances, future financial needs, spouse/partner requirements on your death and your capital requirements now and in future.

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Robert_Sterling_3

If you die does your OH get anything.
In my Final SAlary Scheme my wife gets half of my pension if she survies me and likewise I get half of hers if I survive her.

I was allowed to do a lump sum sacrifice to increase the fraction my wife would get

EdInvestor

Sometimes taking a bigger lump sum doesn;t affect the spouse pension. That's an argument for taking it.

What is the "commutation rate"? This gives you an idea of whether or not it's a good deal. A rate of 12 is pretty poor, 20 is pretty good. Ask your pensions dept.

There appear to be no advantages either way on the tax front.

MrMicawber_2

This is rather mirroring dunstonh's comment, but if you can live the way you want on the reduced pension (both now and projected into the future) then the lump sum is worth looking at. If you can't then you need to be very careful because your lump sum could easily disappear (by eating into the capital to boost your income) and you might be left in trouble when you are least able to deal with it, i.e. when you are very old.

I'm a bit the opposite of exil. Assuming a normal life expectancy I'd want to make I had a guaranteed income I knew I could live on forever before I considered looking at a lump sum. I may just have a low risk threshold on retirement income but I look on it as gambling with my future well being.