Partial incapacity mid 40s

atush

At your commutation rate, the lump sum is attractive.

Who will you leave it to when you pop off with no spouse/heirs?

Farmer-Giles

Commutation rate and slightly reduced life expectancy and potentially slow degeneration does make the lump attractive...
If my brother, nephew and cousin fall out with me, there is going to be a very grateful dogs home ;-)

xylophone

Wait to see if the PILON is tax free before making the decision?

If it is, you could commute less of the pension and have a reasonable amount to save/invest.

If you are concerned about IHT, you might want to consider making gifts now whether as lump sums or regularly from income - helping with the costs of the nephew's education perhaps?

Farmer-Giles

If my only income were to be my monthly pension payment (and saving / investment interest), can I put some of this towards a simple stakeholder pension (with the option of receiving either / or another pension / lump sum from age 55 in 10 years time), or is that classed as 'recycling' and my monthly contribution limited to 1/12 of £2880 ?

kidmugsy

The amount you can economically contribute to a pension is limited by your earnings, except for the £2880 net per annum. We've reached July: have you had any income in this tax year that counts as "earnings"? Presumably not: "whilst employed on zero pay signed off long-term sick". So £2880 net p.a. it is. Combined with £15k p.a. into NISAs from July 1st, that's not too bad a rate of saving into tax-favoured locations. Plus you can look upon the purchase of missing NI years as another investment, I suppose.

As for the lump sum, it is indeed tempting, especially if you don't know how much might be consumed by the cost of moving house: it would be a shame to have too little capital to let you buy the "perfect" new house if you should come across it. After all, if you end up with a surplus of capital you could always consider using part of it to buy a Purchased Life Annuity tailored to your health condition.

xylophone

If my only income were to be my monthly pension payment (and saving / investment interest), can I put some of this towards a simple stakeholder pension

It would seem that you would have no "relevant earnings" so would be confined to a net contribution of £2880 - the pension provider would claim the tax relief on your behalf.

http://www.taxation.co.uk/taxation/Articles/2013/04/17/305801/pension-problem

atush

That is a whole lotta gobbledegook.

this is a UK site, not us, and the amt is 2880

kidmugsy

Farmer-Giles wrote: »

If my only income were to be my monthly pension payment (and saving / investment interest), ...

Come to think of it, you'd probably be better off not buying extra national insurance contributions yet but waiting until nearer your State Retirement Date, because (i) You could use the capital in the meantime (ii) You might die before retirement age (iii) Your medical review might require you to return to work and therefore you'd be paying NICs anyway.

Also come to think of it: another reason to take the tax-free lump sum is as a "bridge" to your State Retirement Pension.