pension option advice

sansevaria

I have shortly to make a decision regarding which pension option to choose.

Option 1 - £15,000 per annum and a tax free lump sum of £45,000

Option 2 - a pension £12,800 and a tax free lump sum of £85,000

I have some savings in an investment portfolio, along with some isas.

I would really appreciate some help required on this one please or is the answer a case of 'swings and roundabouts. Thanks Sansevaria

MikeJones_2

Hi sansevaria,

To help us add meat to the bone so to speak, could you just clarify first (this list is not exhaustive and is aimed at teasing out some answers from you for posters to add useful feedback):

1. Is the pension benefit coming from your membership of a defined benefit scheme (such as a final salary scheme) with your employer/former employer?

2. What is your age?

3. Are you married or do you have a partner?

4. What is your health like?

5. Do you have any hereditary health conditions?

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

dunstonh

or is the answer a case of 'swings and roundabouts.

Nowadays its more a case of what is best for your circumstances. That includes age, tax, existing financial circumstances, future financial requirements, spouse/dependents requirements, risk profile, what you would do with the money etc.

There is no hard and fast rule any more.

sansevaria

Hi Mike - thank you for your speedy reply.

1. The pension benefit is from a final salary scheme (BT) and the yearly pension is increased in line with RPI.

2. I will be 60 next month hence I need to inform them which option I am taking within the next few days.

3. Yes I am married.

4. I have thankfully no health problems at present but I am a male so anything could happen! lol

5. My family's health varied dramatically in that my Mother lived until she was 78 and my Father died at 53 but he had underlying health problems due to an industrial accident.

Cheers, Sansevaria

MikeJones_2

Hi again sansevaria,

This is a once in a lifetime decision and you don't need me to tell you that you really ought to have sought advice from an Independent Financial Adviser. As dunstonh says, your circumstances (health, finances, relationships, family, risk profile, etc) will be unique to your situation.

That said, a couple of things I would immediately provide you with as food for thought:

Spouse and Dependants' benefits
Before you decide whether to access the pension early consider what will happen to any spouse's/dependants benefit. If you commute part of your pension for a lump sum it might be that you reduce any survivors' benefits.

Example:

(a) pension only of £5,000 p.a. including a spouse's pension of 50% on your death (i.e. £2,500 p.a. plus any pension increases)

or

(b) lump sum of £36,000 and a reduced pension of £2,000 p.a. This might have either:

(i) an attaching spouse's pension of 50% of the £2,000 p.a. plus any pension increases (i.e. £1,000 p.a. plus any pension increases) or
(ii) a 50% spouse's pension on the amount of your pension BEFORE you exchange any for a cash lump sum (i.e. £2,500 p.a. plus any pension increases).

Pension Increases to your pension in payment
This might not be possible, but certainly worth checking-up on. Your pension may be made up of different 'slices', with different rates of pension increase attached to the various slices. This may occur because of the introduction of legislation over the years improving pension increases to pensions in payment. It's all date related and enshrined in law.

However, you might have a slice of your pension that doesn't increase in payment. Given the choice (if the scheme permits this) you might want to consider asking the scheme to commute that part first when it exchanges your pension for cash, thereby leaving the remaining part of your pension with pension increases throughout your retirement.

Other issues
There are other issues that you ought to consider such as any Guaranteed Minimum Pension, Bridging Pension, Step-Up Pensions, any changes to pension increases when you get to State Pension Age etc. I could go on.

I'd certainly suggest you talk to an IFA who ought to cover the above and many other points too.

This free Factsheet might shed some light on the above 'other issues' even though yours might not be early (much will still apply as your pension benefits will commence before you reach State Pension Age):

- Early Payment – Active Members

There are also some comments that you might find thought-provoking here:
- 10 reasons why you may not want to take that cash lump sum from your pension

Sorry not to be specific - and I think I know the answers to the above in relation to the BT scheme, but what I've tried to do here is to show you that it's not a straightforward reply for anyone in your situation.

I'd be pleased to post more, if anything is unclear?

Hope that helps?

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

sansevaria

Thank you dunstonh for your earlier response and a big thank you to Mike for your extensive reply and you have certainly given me food for thought. There is so much that you have written which I must admit I do not understand and as such your suggestion regarding independant financial advice, I think I am going to have to investigate.

Much appreciate your advice, Sansevaria