is it best to take a deferred pension early

stuart1066

property.advert wrote: »

Ignoring increases due to RPI and saving interest on the first 5 years money invested, you would receive £2800 a year less in retirement than if you waited 5 years. On a simple net basis, you have to wait until the 24th year before your total receipts from waiting 5 years are more than your total receipts from taking the pension and lump sum now.

That takes you until you are 84 years old and if you die before then, you lose out for sure.

I don't think there is an argument. Take the money and either bank it or save it but just see whether you can live on £808 a month instead of 1,041 a month. If you have some in the bank from the first 5 years, then you'll have interest on that.

Your situation will be individual. But if you need a car or want a holiday of a lifetime, then why wait ? If you really need the £1041 a month then ok, you wait but if you have no debts, I'd have the cash now.

Year 0

0

31,500

Year 1

0

9,695

Year 2

0

9,695

Year 3

0

9,695

Year 4

0

9,695

Year 5

0

9,695

Year 6

42,000

9,695

Year 7

12,495

9,695

Year 8

12,495

9,695

Year 9

12,495

9,695

Year 10

12,495

9,695

Year 11

12,495

9,695

Year 12

12,495

9,695

Year 13

12,495

9,695

Year 14

12,495

9,695

Year 15

12,495

9,695

Year 16

12,495

9,695

Year 17

12,495

9,695

Year 18

12,495

9,695

Year 19

12,495

9,695

Year 20

12,495

9,695

Year 21

12,495

9,695

Year 22

12,495

9,695

Year 23

12,495

9,695

Year 24

12,495

9,695

Total

266,910

264,180

Hi property advert, I think there are some errors in your calculations.
1. You get an age of 84 before crossover should this be 55 plus 24 giving an age of 79.
2. Somewhere in the layout you have missed out £12495 ie you have compared 24 payments of £9695 with 18 payments of £12495, should have been 19 payments of £12495. This will give an earlier crossover age.
3. You use figures of £12,495 and £9695, but £12,495 less 25% gives £9371 not £9695, this will reduce the crossover age further.
Best wishes
Stuart

stuart1066

Hi property advert, I think there are some errors in your calculations.

1. You get an age of 84 before crossover should this be 55 plus 24 giving an age of 79.

2. Somewhere in the layout you have missed out £12495 ie you have compared 24 payments of £9695 with 18 payments of £12495, should have been 19 payments of £12495. This will give an earlier crossover age.

3. You use figures of £12,495 and £9695, but £12,495 less 25% gives £9371 not £9695, this will reduce the crossover age further.

Best wishes
Stuart

Alter_ego

dunstonh wrote: »

That has appeared in the media at various times for the last 20 years. It hasnt happened. The Mail on Sunday is highly unreliable as a source of financial news.

There is no logical reason to remove pension commencement lump sum. Indeed, the ability for it to reduce consumer debt and increase capital spending in the short term helps the Govt.

I'm sure you are right about the MoS, but it was only the tax free element of the lump sum Rupert referred to, not the lump sum itself.

RichandJ

Alter_ego wrote: »

I'm sure you are right about the MoS, but it was only the tax free element of the lump sum Rupert referred to, not the lump sum itself.

ALL of a Pension Commencement Lump Sum (up to 25% of the total value* of the pension) is tax free. There is no taxable element. Are you thinking of redundancy payments ?

* For a defined benefit aka final salary pension multiply the pension (without any automatic lump sum) by 20 to get to the HMRC value.

This assumes that the value does not exceed the Lifetime Allowance, currently £1.8m, due to drop to £1.5m from 6/4/12. Only then are there tax penalties.

Never mind just the MoS, do not take any media outlet's word on financial matters.

kidmugsy

Do you give up anything valuable by starting the pension, e.g. insurance?

jamesd

RichandJ wrote: »

ALL of a Pension Commencement Lump Sum (up to 25% of the total value* of the pension) is tax free.

The post you referred to was writing about removing the tax free element of the package, leaving just the ability to take a 25% lump sum. As distinct from eliminating the lump sum entirely.

RichandJ

jamesd wrote: »

The post you referred to was writing about removing the tax free element of the package, leaving just the ability to take a 25% lump sum. As distinct from eliminating the lump sum entirely.

Post 3 by Rupert Bear, jamesd, and the subsequent post by Alter ego specifically quoted "the tax free element of the lump sum".

That is what I was responding to and trying to make clear there is no "tax free element of the lump sum".

kidmugsy

That is what I was responding to and tring to make clear there is no "tax free element of the lump sum".

A better wording would have referred to the "tax free status of the lump sum".

RichandJ

kidmugsy wrote: »

That is what I was responding to and tring to make clear there is no "tax free element of the lump sum".

A better wording would have referred to the "tax free status of the lump sum".

From those who questioned its status presumably ?

Alter_ego

RichandJ wrote: »

From those who questioned its status presumably ?

I read post 3 as saying the government are thinking of taxing the 25% lump sum. In light of that I pointed out that they were not thinking of stopping the ability to draw 25%. Just of taxing it.
Let's not get mired any further.