Best option

zagfles

Alvyn wrote: »

I have worked out how much, after tax, he will have received in pension.
This does not take into account any interest on the lump sum.

Bear in mind that the interest is likely to be negative in real terms at the moment, ie less than RPI. If the pension is RPI linked then the pension will likely increase faster than the lump sum! Of course this might change in a few years...

Alvyn

zagfles wrote: »

Bear in mind that the interest is likely to be negative in real terms at the moment, ie less than RPI. If the pension is RPI linked then the pension will likely increase faster than the lump sum! Of course this might change in a few years...

If only I knew what was going to happen to the interest rates and how long we were going to live then this decision would be so much easier.

bigadaj

I'd be tempted to take option 1 but it's a personal decision.

How long is left on the mortgage and is it repayment?

Alvyn

bigadaj wrote: »

I'd be tempted to take option 1 but it's a personal decision.

How long is left on the mortgage and is it repayment?

There is 5 years left and it's a repayment mortgage.

atush

you don't say if you have any savings and investments (ie cash for emergencies, repairs replacements etc).

If the mtg has 5 years left to run, you are still working and 23K is enough to live on and pay the mtg it looks good to me.

Can you take a Lump sum of less than 97K?

how much will your pension pay, and is it a final salary or DC pension? if so, what kind of lump sum wil you get?

jamesd

Alvyn wrote: »

I am reassured that his pension is protected to 90%.

Yes, until he reaches normal retirement age its' 90% from the Pension Protection Fund, after that age it rises to100%. Forget the chance of him losing his pension, it simply can't happen any more since the excellent protection there is today was put in place.

Alvyn wrote: »

3. Lump sum £97000 and £14000 per annum
4. Lump sum £97000 then £18000 until state retirement then £12000 per annum

Those two don't look like very good ideas unless he has some reason to believe that he is likely to die a lot younger than the usual age 86 or so that half of men in normal good health live to once they reach 65.

Alvyn wrote: »

1. £23000 per annum
2. £27000 until state retirement age then £19000 per annum

Option 2 can be good if there is a need to boost income until the state pensions start. It's intended to produce a roughly level income before and after that.

However, you have a better option, I think. The income difference until state pension age is £4,000 a year, taxable, so £3,200 a year after tax. But you have a mortgage on which you're currently paying around £427 a month according to the MSE calculator. That's £5,124 a year. Say you were to increase the mortgage term to 15 years, still on repayment basis. That would reduce the monthly payment to £150 and the annual cost to £1,800. That's £3,324 a year you don't have to spend.

So you can get the spending ability boost in the short term but still have the higher £23,000 pension in the long term.

So that's my suggestion: option 1 with extended mortgage term, because it gets the higher effective income for the rest of his life, not just the until state pension age that option 2 delivers.

kidmugsy

jamesd wrote: »

However, you have a better option, I think. The income difference until state pension age is £4,000 a year, taxable, so £3,200 a year after tax. But you have a mortgage on which you're currently paying around £427 a month according to the MSE calculator. That's £5,124 a year. Say you were to increase the mortgage term to 15 years, still on repayment basis. That would reduce the monthly payment to £150 and the annual cost to £1,800. That's £3,324 a year you don't have to spend.

So you can get the spending ability boost in the short term but still have the higher £23,000 pension in the long term.

So that's my suggestion: option 1 with extended mortgage term, because it gets the higher income for the rest of his life, not just the until state pension age that option 2 delivers.

Nice idea: but we still need an answer to Linton's question viz "One question - if you take the £97K will you receive 50% of £23K or 50% of £14K should your husband die?". Because if the answer is "50% of £14k" then the lump sum option changes from rather poor to bleakly awful.

Wilkins

kidmugsy wrote: »

Nice idea: but we still need an answer to Linton's question viz "One question - if you take the £97K will you receive 50% of £23K or 50% of £14K should your husband die?". Because if the answer is "50% of £14k" then the lump sum option changes from rather poor to bleakly awful.

Indeed. This should be in the scheme rules. When I took early retirement, I checked that the widow's pension was based on the uncommuted pension, even though I took the maximum lump sum.

jamesd

kidmugsy wrote: »

Nice idea: but we still need an answer to Linton's question viz "One question - if you take the £97K will you receive 50% of £23K or 50% of £14K should your husband die?". Because if the answer is "50% of £14k" then the lump sum option changes from rather poor to bleakly awful.

That would be nice to know but since it's already rather poor that's enough to know that it's best to avoid the two lump sum options.

Alvyn

kidmugsy wrote: »

Nice idea: but we still need an answer to Linton's question viz "One question - if you take the £97K will you receive 50% of £23K or 50% of £14K should your husband die?". Because if the answer is "50% of £14k" then the lump sum option changes from rather poor to bleakly awful.

It would be 50% of the £14k.
I am in the Nhs pension scheme with special class status so have 5.5 years to go until I get my pension. The means we still have my salary until our mortgage finishes.
We only have about £10k in savings.
I don't think we should take the lump sum but every single person we have spoken to is telling my husband to take the lump sum. Also the other 8 guys in his section who are retiring at the same time are taking the lump sum.