Help decision dilemma

Roy_and_Val

I am due to retire from local government on the 11th June 2007 and my pension provider (local government) Has given me two options OPTION 1 £11,347 yearly pension and £36,450 tax free lump sum. OPTION 2 a reduced yearly pension of £9280 but an increased tax free lump sum of £60,100

I am looking for guidance on the prinicple of the correct road to go down. Any advice would be welcome.

Thanks

wotsthat

You don't say how old you are or whether this will be your only source of income.

You are being offered an extra £23,650 lump sum at a cost of £2067 per year.

It comes down to a gamble on life expectancy but, if it were me and I didn't need the certainty of a fixed income, I'd take the extra cash. £23,650 is going to be worth more today than it will be in the future and the £2067 is probably subject to be tax anyway thus reducing it's value.

If your pension is going to increase each year then this would make me look at the increased pension in more detail because you wouldn't have to live as long to 'win the bet'.

Andy_L

The LGPS pension increases in line with rpi.

Some things you have to consider are:

Do need the enhanced lump sum (eg to pay of a mortgage/buy a sports car).

The tax situation, as whotsthat said you will be into the basic rate of income tax when combined with the basic state pension, whilst the lump sum has tax free investment options

You partners pension situation (is that Val or Roy?) if they have no/minimal pension provision then putting the enhanced lump sum in their name will make use of thier tax allowance, possibly making you better off as a couple.

EdInvestor

If you think you'll live to a great old age and already have a good pot of free savings/investment capital, the larger pension as it's index linked and copper bottomed may be attractive. But if you have other pensions (state etc) be careful your income isn't over 20k, when you get hit for extra tax.


If you think you might not be on the planet so long and are a bit short on savings, it would be better to take the larger lump sum. There are always big spending items in retirement - house repairs, replacing the car, holidays of a lifetime, grandchildren emergencies etc. The money can also be handed on to the spouse, whereas the pension is usually halved on death.

Roy_and_Val

Thank you for your replies, to give a bit more info.

The pension is Vals who is 60 in June 2007 My pension (Roy) I was 60 in March this year is £15,000 per year again a local authority final pension scheme payment.

The way we see it was taking a lesser annual pension and investing the larger lump sum that would have tax advantages and would probably mean if we invested for income and left a small part of the investment for growth we would have the best of both worlds. a) more income per month a less tax liability and still have a large lump sum for the future.

We are not desperate for the lump sum we do have other monies available. I (Roy) work partime and bring home net about £700 net each month. Val is unsure if she is going to work when she finishes in June.

We do intend to spend about £15,000 of the lump sum on improving our home which will leave about £45,000 as an investment figure for small growth and monthly income. I hope this puts the meat on the bone and allows you to consider a little more in depth It is such an important decision all your help and advice is greatly appreciated.

Thanks Roy and Val

Roy_and_Val

Sorry very remise of us I would like to wish everyone a Happy Easter,

seven-day-weekend

Happy Easter to you too!

We have snow here in the Sierra Nevada mountains.

wotsthat

Roy

Happy Easter.

Given your circumstances i.e. you can live comfortably without the income, I'd take the extra lump sum - I'm not saying that it's correct for you but as you have other sources of income you don't need to gamble on life expectancy.

However, an increased initial pension increasing in line with RPI is also pretty attractive.

Tough choice - an excellent pension or a large chunk of cash - nice choice to have!

Roy_and_Val

Thanks everyone for your contribution, all useful advice, my leaning is towards taking the lesser annual pension and accepting the larger lump sum and invest that for income and growth. Doing that we will retain the lump sum and I hope lift our pension to the original annual pension oh decisions, decisions Seven-day-Weekend, we also have a place in Spain on the Costa Blanca inland of Alicante.