Which Voluntary Redundancy Option should I chose?

onehitwonder

3 looks good to me as well. Hopefully you won't get knocked down by a bus in the next couple of years !

getmore4less

BREEZE wrote: »

After 25 years working for the civil service I have received the dreaded 'voluntary redundancy offer'. Now, what do I chose?

Having read lots of blogs I consider myself fortunate to be in a pension scheme. I was 50 this year which means I was offered the option of taking some pension. Here are the options:

Option 1
Voluntary redundancy compensation payment £46400
Deferred pension at age 60 £8243
Deferred lump sum at age 60 £24730

Option 2
Voluntary redundancy compensation payment £46400
Reduce Pension £5036
Reduce Lump Sum £17657

Option 3
Use my voluntary redundancy compensation payment to ‘buy out’ ie pay me an unreduced pension. The total buy out is over £72000 so my employer will pay the difference
Unreduced pension £8243
Unreduced lump sum £24730

Asuming any indexing is the same for all options

Looking at 1 & 3.

3 gives you £8243py + £24730 now.
1 gives you £46400 now. £8243py + £24730 in 10 years
(NOTE this does not take into acount the tax on the redundacy over £30k,
also asumes you can get investment returns tax free which is relatively easy)

In 10 years you need to have £24730 left from option 3 to match option 1 so lets asume you just save option 3 lump sum that and keep pace with indexing.

For 10 years option 1 needs to generate £8243py from the lump sum.

£8243py is £687pm or if we say you also work till 60 and it is fully taxable at the 20% rate say £550pm

Looking at simple draw down on the lump sum
the return required to make the lump sum last 10 years
£550pm 7.5%
£687pm 12.8%

You would have to be a VERY good investor to make those returns over indexing.

So unless you plan on becoming a 40% taxpayer(return is then 1.3%) for the next 10 years option 3 looks like a no brainer over option 1.

option 2 against 3

£46400 reduced to £39323 to make up pension lump sum.

Needs to generate £3027 py or £253pm or £202 @ 20% tax

drawdown return matrix
age 0% tax 20%
60 0% 0%
70 4.69% 2.16%
80 6.67% 4.61%


NEEDs a bit more thought with more accurate numbers based on real tax situations.

BREEZE

Thank you to everyone who replied to me, especially getmoreforless for taking the time to do some maths. What do I choose? I have chosen Option 3. I favoured this in the beginning and after your help and some other info I think that is the best for me.

Good luck to you all