NHS pension: larger lump sum or larger pension

masco1

Due to retire after 40 yrs in NHS. Pension will be just under £50K per year and lump sum around £145K. Should I commute and take maximum lump sum to keep my pension below the higher rate tax level? Difficult to work out what is the best. i do need to pay off mortgage of around £100K.

Linton

IS iot £50K/year + lump sum of £145K or would the £145K result in a loss of pension?

Basically it depends on how much pension you lose for lump sum gained and your mortgage rate. If you are going to use the lump sum to pay off the mortgage it seems a relatively simple matter to calculate your mortgage annual payment from the pension after 40% tax versus smaller pension and the lump sum pay-off of the mortgage.

masco1

50K/yr + £145K LS. reducing pension by £10K/yr to get an increase in LS of £120K, i.e. £149K up to £262K.
thanks

Linton

The 12X commutation rate doesnt sound too good.

As you will pay higher rate tax, taking into consideration State Pension, going for the £10K a year gives you a guaranteed £6K/year. You cant get that, index linked, for £120K.

Will you have enough money from the £145K to pay off the mortgage, considering you will have no further mortgage payments and will be gaining £6K/year after tax?

masco1

yes, mortgage owed will be around £100K so could pay it off with the £145K. I was just thinking of a little cash that I could use for a few niceties! Perhaps I need to be more sensible! thanks for your comments

Linton

masco1 wrote: »

yes, mortgage owed will be around £100K so could pay it off with the £145K. I was just thinking of a little cash that I could use for a few niceties! Perhaps I need to be more sensible! thanks for your comments

I am just looking at it from the point of view of maximising your money. It may be that you have more than enough to live on without the £10K it which case it could be the right decision for you to take the lump sum and spend it on your niceties.

kidmugsy

How old are you, masco1: or, rather, are you about to start your State Retirement Pension?

masco1

59 yrs old

kidmugsy

masco1 wrote: »

59 yrs old

Hm: so it'll eventually be the new style State Retirement Pension for you, I imagine.

As Linton remarks "The 12X commutation rate doesnt sound too good". I think the answer depends on what you plan to do with the extra lump sum if you take it. Buy extra pension for your spouse? Gift it away to avoid inheritance tax? Buy a nice wee place in Tuscany? Buy a Winnebago and drive around the US?
Fast women and slow horses? Accumulate a cellar of fine wines and best malts?

P.S. Is it really necessary to pay off the mortgage? They tend to be really cheap at the mo'.

P.P.S. Does the NHS scheme offer "allocation", whereby you take a smaller pension now so that your widow eventually gets a bigger one? That might suit?

atush

Normally I would say take the higher pension.

In your case (and esp if you have a spouse) you could sock away that extra LS in a few years into S&S isas. Might not pay 6K per annum (but might esp if you don't mind the capital value fluxuating).

Triumph13

Unless you have reason to think you won't make old bones (and with 40 years experience in the NHS you should be well placed to make that call) then I would say spend the £145k on the Winnebago and the fast women and use the £6k pa to pay the mortgage.