Larger pension v larger gratuity

youngatheart_2

Looking for some advice really. My OH is due to retire in April and will receive a pension and a gratuity of 3 times his pension. He has the option to reduce his pension by £3000 pa and take a greater gratuity which would be increased by £36000. As he is only 60yrs old do you think it would be more beneficial to accept greater pension and lower gratuity or lower pension and greater tax free gratuity? Thanks for looking.

Linton

youngatheart wrote: »

Looking for some advice really. My OH is due to retire in April and will receive a pension and a gratuity of 3 times his pension. He has the option to reduce his pension by £3000 pa and take a greater gratuity which would be increased by £36000. As he is only 60yrs old do you think it would be more beneficial to accept greater pension and lower gratuity or lower pension and greater tax free gratuity? Thanks for looking.

I assume his pension is index linked....

For £36000 you could buy an index linked pension of about £1100/year. So, all other things being equal, the value of the pension lost is much greater than the value of the lump sum.

Now other things may not be equal. Possible factors may include..
1) If there are large debts which could only be paid off if the cash was taken.
2) If the lower pension is more than enough to provide a good standard of living and you have something better to do with a large lump sum. For example give it to the kids.
3) If there are real health concerns that he (and you) would not live to enjoy the benefits of the higher pension
4) If greater provision is required for yourself than would be provided by his pension.

atush

The only way I would do this is if he had health concerns which meant he would not be likely to live for more than 20 yrs. AS you are already getting a lump sum, and should have some savings after a life in work I would take the larger pension as that is guranteed and what happens to the 36K is not.

But we can't really say as you hven't provided any detail.

Dilly

atush wrote: »

The only way I would do this is if he had health concerns which meant he would not be likely to live for more than 20 yrs. AS you are already getting a lump sum, and should have some savings after a life in work I would take the larger pension as that is guranteed and what happens to the 36K is not.

But we can't really say as you hven't provided any detail.

Also on the larger pension you will get larger increases each year
Looking at it another way - what is the difference between the 2 pensions? How long would it take you to recoup that extra £6k. it is probably longer than you should be worrying about

NAR

Personally I would look at it another way. Unless there is a financial need to have the extra £3k pa pension (outstanding debts, helping kids through uni etc) then I would take the additional £36k lump sum. This will allow you to live out unfulfilled dreams/wish list over the next ten years when your health is likely to be at its best.
IMHO your financial requirements from 70 onwards will be less than over the next ten years, as you are likely to be less active. Plus who knows how long you are going to live? Averages are one thing, reality quite often turns out to be another. I am retiring in a year and a half and I will certainly be taking my highest lump sum available to me and spending it on my wife and I fulfilling dreams and ambitions.
OP everyone's circumstances are individual and it is up to you both to decide what is best for you and your family.

getmore4less

Will the pension(+state) hit the agerelated deductions.

Pay back is around 12y+ if you asume you can grow the lump sum at the index rate and protect it from tax.

atush

It IMHO that someone retiring would already have cash savings for life's dreams and should not substitute guaranteed indexed income for short term spending. As the lump sum would not be invested to grow if spent on debt or a round the work cruise etc.

But we cannot say for sure as the OP has not supplied this information.

NAR

Atush had you gone through a very expensive divorce, which left you in debt, you would not be spouting about how people would have cash savings for life's dreams in retirement.

PS what is a round the work cruise? :rotfl::rotfl:

atush

I kept my marriage vows so didn't have to worry abt spending money on costly divorce, did you lol?

you should not really make financial decisions with your nether regions ;-)

And around the world cruise is what I meant and you knew that. Something people who have expensvie divorces may not be able to afford?

In any case, I am assuming the OP will have more cash in hand than this lump sum. and if not, they should not lake a larger lump sum as they may fritter it away instead of using it for income as they have not been able to save before they will be unlikely to do so in retirement.

jamesd

Unless there's a need for the gratuity lump sum it'll probably be best to look into taking an even lower gratuity and increasing the ongoing pension. The extra pension can be invested to accumulate a lump sum over time.

NAR

atush wrote: »

I kept my marriage vows so didn't have to worry abt spending money on costly divorce, did you lol?

Yes, not through choice! Ah so you didn't catch your other half misbehaving!

you should not really make financial decisions with your nether regions ;-)

I didn't, but just you jump to your conclusions anyway!

And around the world cruise is what I meant and you knew that.

I did.

In any case, I am assuming the OP will have more cash in hand than this lump sum. and if not, they should not lake a larger lump sum as they may fritter it away instead of using it for income as they have not been able to save before they will be unlikely to do so in retirement.

And maybe they wont need it for income - I wont, as my 2nd wife and I will have sufficient income from our final salary pensions to fritter away our lump sums as we see fit! :beer: