Private works pension lump sum

bgrandma

Are we being daft?, have a work pension that I can now take.

There is a £40.000 difference in the lump sum options but if you go for the lower one you only gain another £200 a month before tax. Taking into account inflation and investing at a low rate we reckon it would take about 20 years for this to come right. Are we missing something or is it a bit of a "no brainer".

Hate that term by the way but seems to cover it!

bigadaj

bgrandma wrote: »

Are we being daft?, have a work pension that I can now take.

There is a £40.000 difference in the lump sum options but if you go for the lower one you only gain another £200 a month before tax. Taking into account inflation and investing at a low rate we reckon it would take about 20 years for this to come right. Are we missing something or is it a bit of a "no brainer".

Hate that term by the way but seems to cover it!

If it takes twenty years to come right then what would life expectancy be? If longer then take the pension.

Sums are fairly easy initially, £2400 per year on £40000 is a return of 6%. Historically not difficult to achieve but you would be struggling to get 3% at the moment. A return of 6% would be achievable with moderate risk on investments, but you may not be someone to use a drawdown style arrangement, or invest the capital I a. Similar manner.

Best reference would be current age and family history of life expectancy. Is the pension inflation linked, guaranteed and or with a spouses element on first death?

penrhyn

Lump sums a useful to pay off your mortgage or other debt that you may have.

CLAPTON

would the pension be indexed linked ?

penrhyn

If mines anything to go by they are usually 5% or RPI which ever is lower, although it might now be CPI indexing.

quotememiserable

bigadaj wrote: »

Sums are fairly easy initially, £2400 per year on £40000 is a return of 6%. Historically not difficult to achieve but you would be struggling to get 3% at the moment.

Since the pension is likely to be index linked, and if the market long term inflation forecast of 3% is right, then you'd need to do 9% with the cash to break even vs the pension. Very low chance of achieving that. I say the pension is very good value and it gives you long term certainty.
Undoubtably the pension provider would rather you take the money because its much cheaper for them. That's why they always call it 'tax free cash' because they know people grab at that phrase.

bigadaj

quotememiserable wrote: »

Since the pension is likely to be index linked, and if the market long term inflation forecast of 3% is right, then you'd need to do 9% with the cash to break even vs the pension. Very low chance of achieving that. I say the pension is very good value and it gives you long term certainty.
Undoubtably the pension provider would rather you take the money because its much cheaper for them. That's why they always call it 'tax free cash' because they know people grab at that phrase.

Yes but the OP would have the capital, initially at least.

atush

penrhyn wrote: »

Lump sums a useful to pay off your mortgage or other debt that you may have.

Useful, but then you have less to live on. I'd be vary wary of using pension to pay off a mtg (unless tiny)

penrhyn

I was referring to the lump sum, not the entire pension. No more mortgage no more monthly repayments.

bgrandma

Thanks for the replies so far still very confused but sure we will get there:beer:

mania112

Don't worry about the mathematical consequences of one option over another.

Do you want/need the lump sum?

Can you afford to live on the lower amount?

You see where i'm going...