Pension Dilemma - Comments appreciated

andysnapper

Here is my position:

Being made redundant on 1st October. Age 55.
£84k pay-off if lump sum taken (less tax and NIC after £30k allowance)
In Local Government Final Pension scheme. Will be paid unreduced pension following redundancy.

Pension lump sum £37k or much more if commuted of course.
Option to buy more years (£56k for 3 extra years).

I have mortgage and debts of £103k which I want to clear. I have regular household expenses of £1,100pm
(food, energy, car etc)
Various options of course but now looking mainly at these two:

1. Taking full lump sum redundancy and commuting pension to max or part of allowance after tax will provide cash of £142k and annual pension of £11.3k.

2. Take minimum redundancy (£27.8k) using balance to purchase 3 extra years on pension (tax free) then commuting pension tax free lump sum to max giving cash of £119.3k and annual pension of £13.1k.

I can play tunes on the commuted pension value to provide a bit more pension of course (but less cash)

Neither option will cover my regular outgoings completely but then I intend to work part time to cover this and provide for any extras.

I have 10 years to receiving the state pension what ever that will be.

Option 1 covers my mortgage and other debt and leaves me a good sum to invest (albeit reduced pension).

Option 2 does similar with less cash in hand left over and a better pension.

I am veering towards Option 1 at present as having a bigger pot of dough to play with gives me more options. My pension will be hit by tax anyway (maybe as much as 40% in the remainder of this financial year).

I would appreciate other views. I have taken advice from 3 IFAs and conclude each was just chasing commission so not much faith in that 'profession' currently.

I would appreciate your comments and observations before I make my 'big decision'.

Many thanks!

Andy

dunstonh

I have taken advice from 3 IFAs and conclude each was just chasing commission so not much faith in that 'profession' currently.

So random people on the internet who dont know your circumstances are going to be any better? Were the IFAs you saw transactional or servicing? Were they fee based or commission based? Did they hold pension income option qualifications or not? Were they independent IFAs or salesforce IFAs?

I would appreciate your comments and observations before I make my 'big decision'.

There is insufficient information in your post to be able to say which option is going to be best for you. We need more detail otherwise its really just picking from the two options and hoping for the best. Not exactly the way to make a once in a lifetime decision that cannot be changed if you get it wrong.

CLAPTON

well you need to do some proper analysis which gives you the accumulated income over the next 30 years or so

however given your relatively young age maximising your index linked pension is probably better than having cash .. do the comparision betweeen 20k cash and 2k pa indexed linked for life (and maybe spouse benefits too)

so I would look at
taking just enough to pay your mortgage/debts in full
and then taking the max pension (basically option 2)

andysnapper

CLAPTON wrote: »

well you need to do some proper analysis which gives you the accumulated income over the next 30 years or so

however given your relatively young age maximising your index linked pension is probably better than having cash .. do the comparision betweeen 20k cash and 2k pa indexed linked for life (and maybe spouse benefits too)

so I would look at
taking just enough to pay your mortgage/debts in full
and then taking the max pension (basically option 2)

Thanks for your reply.


2 other options are:

• £69.3k tax free cash and £17.3k pa pension
• £66.6k tax paid + £36.9k = £103.5k and £14.6k pa pension

One would leave me short to clear my mortgage and the other leaves me no cash to save or invest.

Spouse's benefits are unaffected by commuting pension in my variant of the LGPS scheme.

I have produced cash-flows to age 65, 75 and 85 for all options but frankly after a few years they become meaningless predictions.

Cheers

Andy

margaretclare

You don't seem to be taking into account the possibility of getting another job?

CLAPTON

as dunstonh says there isn't really enough info
I don't know your budget
I don't know if working again is realistic and how much you would earn
I don't know if your partner works and how much or what her pension expectations are

but in any case part of the decision is about comfort feeling and not necessarily rational money planning.

so many people at your age would just love to be rid of the mortgage
and some would just love to have a bit of savings


however just comparing your last two options

you can give up 2.7k pa indexed for life for cash of 34k
now if you simply saved 34k you might get 3% = 1,020 pa which is not related to inflation .

in financial terms I would see the pension as far the better option but then it depends if you have need of cash;; as you are unlikley to even keep pace with inflation with savings a/cs and investing is pretty high risk with so little cash

andysnapper

Thanks again.

My future budget will be £1.1k PCM outgoings (which can be reduced) and around £1k income from pension.
I will take on occassional work to supplement this as needed and to add to my contingency buffer. Finding part-time work is not going to be a major issue where I am located (fortunately).
My wife is not employed and doesn't intend to be. She will need to top-up her NIC in order to get a full state pension when she reaches retirement age which is 5 years away.

Too much in savings with no debt to offset, is little comfort other than as security. I appreciate it is not going to do much without risk and speculation. I may do that with a small proportion but I am not very keen at this stage.
As I do not intend to borrow anything in the future I am reliant in having enough to cover the unexpected like health emergency, car repairs, kids etc.


Andy

andysnapper

margaretclare wrote: »

You don't seem to be taking into account the possibility of getting another job?

Hi Margaret

I won't want to work full time again but already have a variety of solid options on part time or freelance work. I am 100% confident I can suppliment my pension income on either option as necessary, to live relatively comfortably.

Cheers!

Andy