Small final salary pension

dbrookf

I am 60 this year and a company I worked for years ago has informed me that I am due to receive a very small final salary pension. They have given me the option of receiving a lump son and monthly payment or monthly payment on its own. Can I defer this and if so would it continue to be invested by them to potentially grow?

Linton

Final salary pensions aren't backed by individual pots but rather by a single fund covering all members. Therefore it is extremely unlikely (bordering on impossible) that you can get special individualised investment treatment from your final salary pension provider. However it is possible that they may offer deferment terms for extra pension based on a formula, not investment growth - suggest you ask them.

You will need to look at the numbers. Your best option may well be to take the money either as a pension or a lump sum and reinvest it, possibly to pay extra employers' pension if you are still employed.

stu12345_2

your pension grew by a % gmp and a % non gmp if it was deferred.
if you take it at 65 it will prob be 24% higher.
it you take lump sum and monthly amount, you commute the lump sum, if its around 20 its a good deal to take the lump sum, if lower take the monthly pension .

if you get pension at 60 or 65, the grand totals normally cross over aged 82.roughly same total , as if paying out at 60 it is smaller monthly,but over longer period

do you need the money now, will you live to mid eighties, do you have a wife, husband, do you have any other form of income, do you rent or own, do you claim any social security benefits, do you currently work

dbrookf

stu12345 wrote: »

your pension grew by a % gmp and a % non gmp if it was deferred.
if you take it at 65 it will prob be 24% higher.
it you take lump sum and monthly amount, you commute the lump sum, if its around 20 its a good deal to take the lump sum, if lower take the monthly pension .

if you get pension at 60 or 65, the grand totals normally cross over aged 82.roughly same total , as if paying out at 60 it is smaller monthly,but over longer period

do you need the money now, will you live to mid eighties, do you have a wife, husband, do you have any other form of income, do you rent or own, do you claim any social security benefits, do you currently work

Can you give me a 'for example' scenario for your 3rd sentence please
stu12345?

stu12345_2

lets say its a 1000 a year plus 3000 lump sum, a commutation of 20 is 1150 a year no lump sum.

good deal if you need cash slowly and you live longish, remember a big lump sum affects any dss benefits, but i dont know ur circumstances

rpc

It depends on the scheme rules.

Deferred members in my scheme receive only the inflationary increases and gain nothing by putting off starting the pension. Active members are different.

Lump sum vs annual payment depends on the conversion rate and your other incomes.

stu12345_2

if deferred and you wait till 65 it grows perhaps 7% gmp, rpi non gmp, that my pension, once in payment it grows cpi only

u may have a rule that take at 60 is same value as 65, depends on yrs service

rpc

stu12345 wrote: »

if deferred and you wait till 65 it grows perhaps 7% gmp, rpi non gmp, that my pension, once in payment it grows cpi only

The only person in this thread who has mentioned a GMP is you. OP may not have an has not mentioned any GMP.

OP suggests that he is approaching the scheme NRA anyway so it should all be made up. While I don't know too much about GMPs (I'm not that old) I'm pretty sure that they don't keep getting revalued beyond age 60/65.

kidmugsy

Further to Linton's point about taking the pension and recycling it into new pension contributions, a good idea is to work out the "commutation rate" you are being offered. Divide the lump sum by the corresponding decrease in annual pension. If the answer is bigger than twenty, the lump sum is probably decent value. If the answer is down at around 12 it's poor value: taking the bigger pension is probably a better bet unless (i) you need a lump sum, or (ii) you have objective reason to believe you will be short-lived.

Another possibility would be to put the monthly pension into a regular saver account - there are some around paying 6% p.a. (gross) - and then contribute the maturity amount to a pension, and begin a new monthly saver.

All these remarks assume that (a) you have no expensive debt, and (b) you have a decent emergency cash fund.

Daniel54

If you don't need the money now,it is certainly worth asking if the pension will increase if deferred past your pension normal retirement date.You may need the trustees permission to do so.

As rpc has said,this may well depend on the scheme rules.I deferred a final salary pensiion at 60 last year and that is growing by 7% pa in deferment,which is a pretty handy risk free rate of return

dbrookf

Daniel54 wrote: »

If you don't need the money now,it is certainly worth asking if the pension will increase if deferred past your pension normal retirement date.You may need the trustees permission to do so.

As rpc has said,this may well depend on the scheme rules.I deferred a final salary pensiion at 60 last year and that is growing by 7% pa in deferment,which is a pretty handy risk free rate of return

How come it is 'risk free'?