We'd like to remind Forumites to please avoid political debate on the Forum. This is to keep it a safe and useful space for MoneySaving discussions. Threads that are - or become - political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
Buying added pension - good value?

monty_pylon
Posts: 24 Forumite
Hi,
looking at my pension options (age 56, PCSPS Classic scheme pension currently worth 13.5k pa), if I continue to 60 it would be 15.5k but there may be voluntary redundancies next year that I will consider.
I can buy added pension of £1000pa (before tax) now for £21,166 on which I would also get tax relief of £4233. Add to that I would get 3x£1000 added to my lump sum, if I deduct that from my 21k I make that a rate of 5.74%? Not strictly true I know as the lump sum would be 4 years away. We have 260k in savings so the money can be found, its just a question of whether this represents good value?
looking at my pension options (age 56, PCSPS Classic scheme pension currently worth 13.5k pa), if I continue to 60 it would be 15.5k but there may be voluntary redundancies next year that I will consider.
I can buy added pension of £1000pa (before tax) now for £21,166 on which I would also get tax relief of £4233. Add to that I would get 3x£1000 added to my lump sum, if I deduct that from my 21k I make that a rate of 5.74%? Not strictly true I know as the lump sum would be 4 years away. We have 260k in savings so the money can be found, its just a question of whether this represents good value?
0
Comments
-
If you really can get the equivalent of an index-linked annuity at age 60 that yields 5.74% (I calculate 5.9% which is near enough) that sounds pretty good. It's higher than commercial rates and will beat what will be on offer to you later on by deferring your State Retirement Pension, because the present excellent terms for that deferral are going to vanish: it's been just too expensive for the taxpayer.
By the way, is it possible for you to give up some of your lump sum to get a bigger pension? If so, are the terms on offer attractive?Free the dunston one next time too.0 -
By the way, is it possible for you to give up some of your lump sum to get a bigger pension? If so, are the terms on offer attractive?
Thanks. For commuting lump sum into pension at 60, the rate is £5.06 per £100, or £4.85 with the widow's pension. Assuming this is still on offer in 4 years time, am I better using low interest savings to buy at the better rate now and replace with the lump sum later?0 -
monty_pylon wrote: »Thanks. For commuting lump sum into pension at 60, the rate is £5.06 per £100, or £4.85 with the widow's pension. Assuming this is still on offer in 4 years time, am I better using low interest savings to buy at the better rate now and replace with the lump sum later?
Quite possibly. Then just before age 60 you could reconsider and even end up doing both if it seemed attractive.
One other thought: some final salary schemes offer, or used to, "allocation" whereby you'd give up part of your own pension so that your widow would in future get a bigger one than she otherwise would. It might be worth checking whether your scheme offers that, because if it does then as you approach sixty you could consider using it, depending on the health of each of you.Free the dunston one next time too.0 -
You should also learn about flexible income drawdown. That lets you take an unlimited amount of money out of a personal pension pot. The usual 25% tax free lump sum, then the rest you can take whenever you like but the amount you take is added to your taxable income for the year in which you take it and taxed as normal. You need £20,000 of guaranteed income in payment to qualify. With the work and state pensions you'll be there.
The lump sum commutation rate is quite decent but it's still probably better to use flexible drawdown for a lump sum and take the highest available income from the work pension.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply

Categories
- All Categories
- 348.3K Banking & Borrowing
- 252.1K Reduce Debt & Boost Income
- 452.4K Spending & Discounts
- 240.9K Work, Benefits & Business
- 617.1K Mortgages, Homes & Bills
- 175.6K Life & Family
- 254.1K Travel & Transport
- 1.5M Hobbies & Leisure
- 16K Discuss & Feedback
- 15.1K Coronavirus Support Boards