take lump sum or highr pension

kidmugsy

You might find this helpful.

http://www.dailymail.co.uk/money/cardsloans/article-2273333/Play-credit-cards-right-snap-lowest-balance-transfer-fees.html#axzz2Jw2nKVli

quotememiserable

I'm a trustee of a large pension fund, and we aslo offer a commutation rate of about 15x. This is a rate that the actuary calls 'safe' ie safe for the scheme. If you live to average age then the pension will be better than the cash. A problem with the cash is that a lot of people spend it, then have the lower income to life on for the rest of their life. Further, because the pension is index linked, and passes 50% to surviving spouse, its a got a lot of gaurantees around it that the cash invested will not have. Its a no-brainer for me, but saying this most people take the cash because they can't resist the idea of receiving it.

Renoir77

quotememiserable I smiled when I read your previous post about lump sums . I am about to take mine from my defined pension scheme and these last ten years have been a roller coaster health wise for me. So to reach the age of 60 having got over that last upwards journey and down the other side still here and intact with a few health issues is great. I have no idea what the next ten years and beyond holds for me but I plan to enjoy them as best I can by spending a little now and doing some of those things that were planned for my 50's but never happened. So sometimes life makes you live for the day and not the future. I wish you well in your retirement when it arrives I understand your comments but sometimes life throws you a lemon when you least expect it and do not work out as planned.

xylophone

I am about to take mine from my defined pension scheme

Did you manage to sort out the S32?

Renoir77

xylophone wrote: »

Did you manage to sort out the S32?

Hi xylophone, Yes it's in query with Aviva. I've now established that the revaluation was at a limited fixed rate of 5% and due to the many errors re-dates and values they are in the process of checking it over although I'm unsure how things will pan out. I will let know.

Heedtheadvice

Thanks all for the responses to date. It impresses me that many knowledgeable people will give their advice and opinion so freely. I have been 'off sick' with the lurgi for the past week - it has been very debilitating so was more than man 'flu and I have really done very little, hence not posting back. However I was very surprised at the amount of postings made to this general 'Pensions' topic on the board and the number of people being helped; those who posted and those who read. Thanks often due to some who regularly post what does seem to be such good advice and information.Thanks must be extended to them and MSE.

We have now got Mrs H's pension forecast online. It was easy to do (if anyone has any doubts) and is helping to clarify the situation, being ever so slightly better than Basic but missing out on the higher flat rate by just a few weeks it seems.

I think, having slept on the question and the responses, in a feverish state at times :-( , for a week that you have, in this thread and others, given me enough ideas to be able to go away and make a rational decision. Only we can do that. It will not be easy, a lot rides upon it and it will take time but I feel more able to do that after this dialogue.

Thanks all.

atush

We have now got Mrs H's pension forecast online. It was easy to do (if anyone has any doubts) and is helping to clarify the situation, being ever so slightly better than Basic but missing out on the higher flat rate by just a few weeks it seems.

I do not know the ins and outs of deferral of SP, but do inquire if your spouse defers her pension, if she would qualify for the new HR?

jamesd

If by "new HR" you mean the proposed flat rate cut to pensions for employees, that's decided based on the date when you reach state pension age and deferring has no effect in it.

Under the current system deferring for a while is likely to be a good idea.

Under the new system we don't know how much the increase will be for deferring but so far it looks likely to be lower and likely to be a bad idea.

Heedtheadvice

There are so many post regarding lump sums that I thought it might be of value to others to have my decision!

Firstly I took on board that the commutation was not great value in terms of my annual pension income in the short and long term given a certain amount of inflation protection. This is tempered with it not being fully protected if inflation becomes rampant once more as it has done in the past.

It has become apparent that my wife's situation was not as bad as feared and she will be entitled to the higher pension following the last budget change.However more protection is required over and above the spouses pension should I die first and her own state pension. Getting the facts (as well as ideas and advice) before making any decision is invaluable.

By commutation I would not have as high an income even considering if I were to invest the lump sum, but surprisingly when tax is taken into consideration the difference is not as great as first imagined i.e. tax on pension income (above personal allowance) is 20% (basic rate) whereas that from dividend income only 10%. Past experience has shown that a few selected Trusts could nearly maintain as much income as lost pension. Overall result a slight drop in income.

Risk of not keeping up with inflation for the pension possibly on a par with rising dividends, current dividend rises better in the short term than the pension inflation linking (some great track records out there) and could do better than my pension (capped rises) if we return to just historical norms for inflation. Capital risk in the equity investments greater but will mitigate those via spreading investments and long term should be reasonable. There is also possibility of a small capital appreciation, again over the longer term from growth and income trusts. There might be a risk that, if there is no commutation and once I get state pension too, it could put me at a tax disadvantage - if ever the over 65 allowance is brought back in (presuming here that it will effectively disappear during the life of the coalition! - it's always difficult to predict these things!!!) As things stand no Inheritance tax issue.

The lump sum (provided it is preserved) will give my wife a significantly higher income should I die first and is also a capital asset that, should it be needed, is available and would not be available with no commutation; if not needed we can pass it on to family.

So to sum up: Slightly smaller current income; significantly higher spouse income and protection (should I die first); a few risks either way.
Result: Took a middle of the road option and commutated about half of what I could that will be invested in stock and shares ISAs for us both! Expected to get sufficient income for all scenarios i could think of and.......peace of mind!

Rule of thumb though still seems to be it's not a great move to take a big lump sum unless there is a particularly good deal being offered, and that could be unlikely these days.