Lump it or leave it?

Eck

You've probably guessed what i am going to ask but any advice would be really appreciated, here goes, i am almost 53 and i have a deferred final salary pension with my previous employer, i was made redundant 4 years ago and became self employed, my small business isn't doing too well at the moment and i have very little cash behind me, i contacted my ex employer who told me that i could take a 25% lump sum of my pension which amounts to approx £40k, this is really tempting me as i could do quite a bit with that cash, i.e paying off a few debts etc.
The only thing is i was told that i would also have to take my pension, apparently our scheme does not allow for you to just take a lump sum, so, if i take the lump sum my pension would be approx £6k per year.
I know that i would be losing a lot of pension money if i take this route, but you never know what is round the corner, thing is i really dont know what to do, i've also thought that if my pension was low at retirement age i could look into equity release on my property to give me and my wife a better income, all suggestions greatly welcomed.

dunstonh

If it is a money purchase scheme, you can transfer the pension to personal pension or SIPP and do income drawdown with a zero income but take the 25% lump sum. The income can then be kicked in at a later date when its needed. I did that recently for one of my clients.

You can still do it with final salary schemes but these are more complicated for you to see if its worthwhile or not. You would basically need a G60 qualified IFA to look into it and cost up the options. This transaction would fall under high risk rules and it is unlikely any provider would accept you doing it yourself without getting an IFA to sign off on it.

EdInvestor

Eck wrote:

... my small business isn't doing too well at the moment and i have very little cash behind me, i contacted my ex employer who told me that i could take a 25% lump sum of my pension which amounts to approx £40k, this is really tempting me as i could do quite a bit with that cash, i.e paying off a few debts etc.

Do you have enough to live on without spending the pension? How much of it will be left after tax? How much of the lump sum will be left after paying off the debt?Is the pension index-linked for inflation?

I know that i would be losing a lot of pension money if i take this route

You might be, it depends when you die .Ask them for a forecast of your pension at normal retirement age (deferred F/s pensions are increased by inflation or 5% annually) If you start getting the 6k now,12 years early, how long would you have to live if you went at 65 with a bigger pension to equalise the 72k already in hand?

Do you think you might die young, leaving your wife with a 50% pension? If so, and you can save some of the pension/lump sum if you take it now, accumulating capital which can be invested to produce top-up income, that might be a better bet.

I've also thought that if my pension was low at retirement age i could look into equity release on my property to give me and my wife a better income, all suggestions greatly welcomed.

Trading down to a cheaper property is a better deal for younger retirees. Take a second bite at the cherry on the cheaper property with equity release when you get older - you can get much more money and probably at a better rate.

Eck

Thanks for the replies its very much appreciated, firstly my pension is index linked and the pension that i would receive if i was 65 just now would be approx £18k per annum, so you can see that i would be losing quite a lot of pension money if i opt to take the lump sum and a much smaller pension of
£6k now, you are correct when you say that you dont know how long i could live after 65 ( quite a while i hope ) so say that i lived for at least another 10years that would mean that i would be getting approx £180k over that period of time.
Now, if i opt to take the £40k lump sum and a pension of £6k now, and i live till i'm 75 that would accumulate a pension total of £172k, therefore losing £8k, it doesn't sound an awful lot but the longer that i live past 75 the more that this loss obviously becomes, the other point is this, could i survive from say 65 onwards with a miserly pension of approx £6k ?
I really don't know what to do and i appreciate the helpful contributions to my questions, but, to put anyone on the spot who would like to answer me this...................what would you do in my situation?


Many thanks

Alex.

EdInvestor

Eck wrote:

... firstly my pension is index linked..Now, if i opt to take the £40k lump sum and a pension of £6k now, and i live till i'm 75 that would accumulate a pension total of £172k, therefore losing £8k...[/quotew]

You're not including the index linking I think.It may be worth your while to see how much it would coist to buy an index linked annuity (RPI?) for a man of your age/with spouse's pension.

https://www.annuity-bureau.co.uk

I suggest at this stage you ask them for a "transfer value" to see how much you would have if you moved it to an income drawdown arrangment , took the 25% in cash and left the rest invested until later without taking an income.

The deal they're offering you now is really very poor.

Eck

The deal they're offering you now is really very poor.

Isn't what they are offering me within normal rules for taking a pension early? I thought that most deferred company pension scheme would operate along similar lines, as far as i understand, i have a pot of money and from it i can take a 25% lump sum ( this is what they have offered) and also my pension would reduce due to my age, isn't this normal?
I can't see how they can improve on what they have offered, or can they?

Cardew

The dilemma we all face on taking a lump sum is easy to solve if you have the right information. All you need to know is:

Exactly how long you will live.

Exactly how long your wife will live.

What the inflation rate will be during the rest of your life.

What the inflation rate will be during the rest of your wife's life.

What return you will be able to get each year, for the rest of your joint lives, on any lump sum realised, or what you will save by using the lump sum to pay off debts.

With the excellent crystal balls I am selling on EBay it won't be a problem to find out that information!!

Eck

sarcasm is the lowest form of wit............:rolleyes:

Cardew

Eck wrote:

sarcasm is the lowest form of wit............:rolleyes:

It was meant as humour not sarcasm! and to illustrate the point that there are so many unknown factors that none of us, having faced the dilemma or not, can really offer meaningful advice.

Its a gamble, pure and simple - I won't be taking the lump sum, but only because I don't need to.

MABLE

Cardew wrote:

The dilemma we all face on taking a lump sum is easy to solve if you have the right information. All you need to know is:

Exactly how long you will live.

Exactly how long your wife will live.

What the inflation rate will be during the rest of your life.

What the inflation rate will be during the rest of your wife's life.

What return you will be able to get each year, for the rest of your joint lives, on any lump sum realised, or what you will save by using the lump sum to pay off debts.

With the excellent crystal balls I am selling on EBay it won't be a problem to find out that information!!

There is a time to be serious and a time to be humerous and as you had nothing constructive to add it would have been better to have kept your words to yourself. The action the original poster takes now will have an impact on his financial future and silly inmature remarks are no help to anyone. Just my thoughts of course!

Cardew

MABLE wrote:

There is a time to be serious and a time to be humerous and as you had nothing constructive to add it would have been better to have kept your words to yourself. The action the original poster takes now will have an impact on his financial future and silly inmature remarks are no help to anyone. Just my thoughts of course!

Is it not constructive to present, in a manner intended to be humorous, the factors that make it such a dilemma for those of us faced with the problem?

Do you also not feel that we are aware of the impact such decisions have on our financial future?

The OP made his point about my post and I explained my position.

As you apparently feel my post had nothing constructive to say, may I ask what positive contribution you feel your patronising and insulting post has made to this thread?

I accept they were “just your thoughts”. It is a pity you didn’t keep them to yourself, as revealing them has demonstrated a weakness in that department.