Occupational Pension Dilemma?

vigman

WOW...thank you so much for that work, only just come back online tonight!

I'm going to look at things optimistically, although the retirement on ill health grounds is a bit of a clue that longevity may not be on my side........but hey I've survived two 'fatal' illnesses over the last 10 years!!

Vigman

jamesd

I tend to prefer that way of looking at things.

vigman

vigman wrote: »

Re-visiting this now my choice is actually here and there are changes as detailed after my quote


Hi

I'm soon taking Tier 1 Ill Health retirement in my 59th year. The figures I seem to be quoted are a choice of 67K lump sum and 10K per annum or 20K lump sum and 14K per annum. At first I thought that the latter was the obvious choice but doing the sums I found that it won't be until I'm 69 that I start to 'lose out' by taking 4k less pa (however I will get state pension at 65):

AGE Lump Sum @ 58 £67,000.00 OR Lump Sum £20,000


58 £10,000.00 £14,000.00
59 £10,000.00 £14,000.00
60 £10,000.00 £14,000.00
61 £10,000.00 £14,000.00
62 £10,000.00 £14,000.00
63 £10,000.00 £14,000.00
64 £10,000.00 £14,000.00
65 £10,000.00 £14,000.00
66 £10,000.00 £14,000.00
67 £10,000.00 £14,000.00
68 £10,000.00 £14,000.00
69 £10,000.00 £14,000.00

Both totals = c £188,000.00 by age 69

Which option would astute MSE folk take? Obviously the 67K could be fed to interest earning accounts (I'd have to release c 10K pa from this). I am on standard Tax allowance

My head is spinning, so any advice appreciated, please?

Vigman

Now the time is actually here, the figures are 14.7K pa and 21K lump sum or 10K pa or 70K lump sum at age 58.

Although JamesD did a superb calculation showing that the higher pension and lower lump sum is best over time, the one difference I hadn't given thought to is the tax situation.

Soon (hopefully) the 10k pa won't be taxed and equally the 70K lump won't be taxed.

Is the higher pension pa and lower lump sum still returning the best amount over time given the tax situation? Obviously being an LGPS pension there will be good annual increases in the annual pension payments.

As my pen is now hovering over the options, I'd like any final thoughts, please, just comparing the two options without a set target income or possible investment returns.

TIA

Vigman

atush

Unless your health is so bad you don't expect to live beyond 10 years, it is clear to me you should take the lower lump sum and the 14.7K.

And trim your spending so that you can live on it, rather than 20K. Do you have any other savings and investments? House? mtg? Make sure if you have any savings outside ISAs to whack it in one ASAP to save tax.

The only reason I can see to take the higher lump would be to pay off a mtg (that would lower your outgoings).

vigman

Many thanks

Sensibly paid off our mortgage a few years ago and ISAs are topped up.

I had ticked the higher lump and lower pa pension option but then tried to work out the tax implications as 10k pa may soon be out of tax.........

Hopefully 10 years is realistic as my problems are degenerative but not fatal, so higher pension and lower lump sum it is!!!

Vigman

Bigmoney2

Remember that 14.7k of pension will give you more per month than 14.7k of salary, as it does not incurr NI and you will no longer be paying pension contributions. It should give around 1100 per month

vigman

Bigmoney2 wrote: »

Remember that 14.7k of pension will give you more per month than 14.7k of salary, as it does not incurr NI and you will no longer be paying pension contributions. It should give around 1100 per month

...and the personal allowance has gone up to 8105.....!

Vigman

jamesd

A quick look suggests no change in the smaller lump sum being the best choice. The tax changes help to reduce the short term cost because more of the short term money isn't going to be taxed. Elimination of the extra age-related allowance, but with the general one increasing, will somewhat reduce the rate of gain over the long term. So some changes around the edges but no change to the big picture.