Received Retirement Statement Advice Needed Pleas

Andy16

Hi, My wife and I work in local government I have approx 25years service and she has 20 years, both paying into final salary pension schemes. Our service is being reorganised and our jobs will be totally different and neither one of us wants to reapply for a job we don't want to do. It has also been regraded at a lower pay rate. Consequently, we have decided to take voluntary redundancy. There wouldn't be enough jobs for the current amount of staff anyway.
My wife is 50 and has been told that her pension will be frozen as it presently stands. I am 63 and have today been sent my retirement statement which has two possible options, I wasn't expecting this and could do with some thoughts on it if possible please.

Option 1 Standard pension benefits

Tax free lump sum: £26824.51
Annual pension: £10643.78

Option 2 Maximum tax free lump sum option

Tax free cash lump sum: £55192.03
Reduced annual pension £8278.82

We would both have the tax free redundancy payment which combined with some savings equates to approx £50000.
We have £60000 outstanding on the mortgage so would need to pay that off.
We have some endowments for around £30000 which become payable in 5 years.
I'm not sure which option to accept and need to make a decision very soon and wondered if anyone had any thoughts on it please.

Thank you.

Linton

They are offering you £28368 in exchange for an index linked pension of £2365/yr.

If you took the cash and bought an index linked annuity you would get less than £1000/yr, assuming you are in good health. Tax would reduce the benefit of the LA pension somewhat, but still the pension is by far the better deal, all other things being equal.

So are all other things equal? Some things which may change the apparently obvious conclusion are...

1) If you are in bad health and do not expect to survive many years to take advantage of a higher pension

2) If you have more than enough pension income without the extra £2365 and have a better use for £28K.

3) If you have a large amount of high interest debt.

Loughton_Monkey

This is the standard 12:1 commutation rate. I find it strange why they keep offering this out-dated and uneconomic commutation. The converse of this is that the equivalent annuity rate is 8.33% - more than double the rate you could get in the market.

Hence, unless you desperately need the additional lump sum, it is brainlessly obvious not to take it. Any of us who have already retired - were we to be offered an 8.33% annuity rate on our savings - inflation proofed - would take every penny of our savings and put it in tomorrow.

As for the mortgage, it's up to you. If you are paying 8% interest rate, then pay it off. If you are paying 1½% then don't. We do not know the interest rate and therefore nobody can make any sensible comment.

Andy16

Thank you both very much for this information it is really helpful to us.

With regards to the mortgage it is offset against savings, and currently has 5 more years to run at this arrangement.

Again thank you for your help.

ffacoffipawb

Loughton_Monkey wrote: »

This is the standard 12:1 commutation rate. I find it strange why they keep offering this out-dated and uneconomic commutation.

Probably the scheme rules - 1/60 pension or 1/80 pension plus 3/80 lump sum per year.

Lump sum is therefore 12 x pension

kidmugsy

In your shoes I might be tempted to use part of your new capital - redundancy pay + smaller lump sum - to offset my mortgage payments to near zero (unless your mortgage interest rate is lower than prevailing savings interest rates) and then revisit the decision when my endowment capital became available in 5 years time.