sacrificing lump sum

robin61

I am 53 and in scheme B of the BT pension scheme. My wife and myself own our house outright, we have no debts and between us we've got around £60k in savings.
I have the option of taking less tax free lump sum and buying additional pension. BT tend to keep quiet about this option which makes me wonder if it is worth consideration. When I spoke to our pension scheme help desk I was told that for someone aged 60 each £1000 lump sum sacrificed buys £49 of pension. Presumably if I retire earlier the terms will be less generous.
Providing I am still in decent health when I retire does this sound like it is a good deal ?
Thanks.

pip895

4.9% - Is it index linked? If so then worth doing I would have thought, if not then very marginal. I think if you were to purchase an annuity then you would get more (over 5% not index linked but if index linked then it would be only around 3%)

Mr_Prudent

robin61 wrote: »

I am 53 and in scheme B of the BT pension scheme. My wife and myself own our house outright, we have no debts and between us we've got around £60k in savings.
I have the option of taking less tax free lump sum and buying additional pension. BT tend to keep quiet about this option which makes me wonder if it is worth consideration. When I spoke to our pension scheme help desk I was told that for someone aged 60 each £1000 lump sum sacrificed buys £49 of pension. Presumably if I retire earlier the terms will be less generous.
Providing I am still in decent health when I retire does this sound like it is a good deal ?
Thanks.

Hi Robin61. I have been thinking along those lines myself. As you point out not widely promoted by BTPS, in fact they tend to wave the temptation of more cash in the form of a larger lump sum or sacrificing a chunk of index linking for more upfront pension under peoples noses in the hope that you haven’t done your sums! Of course some peoples circumstances are different (Ill health, no dependents) so there’s no hard and fast rule.

robin61

pip895 wrote: »

4.9% - Is it index linked? If so then worth doing I would have thought, if not then very marginal. I think if you were to purchase an annuity then you would get more (over 5% not index linked but if index linked then it would be only around 3%)

Yes it is index linked to the CPI.
What worries me is that future governments especially Labour could start messing about with the 25% TFLS. So if they were to start taxing this then I guess the pension increase option becomes more attractive.

robin61

Mr_Prudent wrote: »

Hi Robin61. I have been thinking along those lines myself. As you point out not widely promoted by BTPS, in fact they tend to wave the temptation of more cash in the form of a larger lump sum or sacrificing a chunk of index linking for more upfront pension under peoples noses in the hope that you haven’t done your sums! Of course some peoples circumstances are different (Ill health, no dependents) so there’s no hard and fast rule.

Yes it isn't even an option you can model via the on line retirement planner but it is burried in the small print within the scheme B PDF.

Mr_Prudent

robin61 wrote: »

Yes it isn't even an option you can model via the on line retirement planner but it is burried in the small print within the scheme B PDF.

You’re lucky in that you are able to access the online planner via the pension portal or BT Intranet. Once you’ve left the only option is to request information via phone, email or written correspondence, which for the pension fund of a telecommunications company seems a little bit last century!

robin61

Mr_Prudent wrote: »

You’re lucky in that you are able to access the online planner via the pension portal or BT Intranet. Once you’ve left the only option is to request information via phone, email or written correspondence, which for the pension fund of a telecommunications company seems a little bit last century!

Yes it is pretty useful. It would be even better if it had all of the options available though !

kidmugsy

Have a decko
https://forums.moneysavingexpert.com/discussion/5049791

System

HI

Part of this is that schemes want to know their liabilities, for future planning/funding. So paying out a lump sum removes the liability of a pension that could be in payment for 10 years, or even 50 years.

Therefore, as I think you noticed, you are being nudged to go for a lump sum.

You can take the money and buy an annuity elsewhere or whatever. The difficulty is that you are thinking now about the circumstances in 7 years time.

All I can suggest is you keep monitoring the situation and adapt your choice accordingly.

robin61

johndough wrote: »

HI

Part of this is that schemes want to know their liabilities, for future planning/funding. So paying out a lump sum removes the liability of a pension that could be in payment for 10 years, or even 50 years.

Therefore, as I think you noticed, you are being nudged to go for a lump sum.

You can take the money and buy an annuity elsewhere or whatever. The difficulty is that you are thinking now about the circumstances in 7 years time.

All I can suggest is you keep monitoring the situation and adapt your choice accordingly.

You are right. It's quite frustrating what we need is some stability so that people have the confidence to invest for their future without having to worry about the rug being pulled away from them at the last minute. I am hoping that I will be able to go at 57 really.
At the moment I am benefiting from investing in my AVC with 40% tax relief and 12% NI relief. It will significantly increase my TFLS so I am sticking as much as I can while everything is in my favour. If things change like the tax relief or TFLS it will still have been a good investment.