Could/should I pay my redundancy into my pension?

jamesd

That 11.5 commutation rate is pretty horrible. Better to take the higher income and invest that instead of taking any lump sum from that pension.

dunroving

For reverse commutation (lump sum converted to income) isn't 11.5 pretty good? Costs less of a lump sum (£11,500) to get £1,000 additional pension income? Only have to live 11.5 years to make your money back (ignoring inflation)? Especially for a retirement age of 60?


I thought lower commutation rates were considered bad for people going in the other direction (giving up pension in order to increase lump sum)?


(Maybe I am completely mis-reading the thread).

dunroving

boojon wrote: »

atush - lump sum is not automatic, but we haven't come across anyone who thinks it's a good idea to do anything but take the 25% tax free on offer (bird in the hand, you never know how long you'll live, etc.). The remaining 75% is mostly indexed-linked (there are some pre/post 1997 rules on this within the scheme), so we expect to be OK financially; and then we get a top-up from the state at 66.


Dunnit & xylophone - thanks for tips and the link, will take a look, but given that we already sub our children constantly in various ways, we want to explore SIPPS that we can invest in and manage ourselves and pass on to them as pensions when we're gone, so they can do the same for their kids in the future. If we gift now, 'chalk' will just buy a bigger house and 'cheese' will just stay on benefits.

FYI, my post above was based on the OP's statement here (bold) - I was assuming the discussion was about whether to take pension instead of TFLS (OP seems inclined towards the latter).


It may be we are crossing wires - it seems better for eth OP to take pension rather than TFLS, because of the 11.3 commutation rate, correct?

jem16

dunroving wrote: »

(Maybe I am completely mis-reading the thread).

You appear to be misreading. The OP isn't talking about inverse commutation, just normal commutation.

boojon wrote: »

atush - lump sum is not automatic,

As the lump sum is not an automatic one, the OP is having to give up pension to get the 6 figure lump sum being talked about.

atush

Which tends to be a bad idea, esp at that rate

Triumph13

Whilst I personally would take the pension rather than the lump sum, the other factor arguing the other way is tax. If the OP's wife's pension is already going to use up all of her personal allowance then the sum (ignoring inflation and investment returns) is £11.5k cash now or £800 a year for life which is a payback period of just over 14 years. If she's in good health though that is probably 10 years less than her actual life expectancy so still a very bad deal.

boojon

The other factor we need to consider is that there is no obligation to index-link the pre-1997 element of my spouse's pension. Though we still have no details from the pension administrator, we think this might mean only 1/3 is index-linked?

Can't make our minds up (or do the maths for that matter) as to whether this advances the argument for taking the maximum lump sum and reinvesting?

We have a number of ISA investments in funds from 2000 onwards which have given us annualised returns of around 6%

xylophone

The other factor we need to consider is that there is no obligation to index-link the pre-1997 element of my spouse's pension

Not exactly.

Your wife's pension should be split out into pre 88 GMP, post 88 GMP and the excess.

After GMP age (still 60 for a woman),the employer has no obligation to index link pre 88 GMP and only up to 3% of post 88 GMP. The excess is index linked under scheme rules.

When female state pension age aligned exactly with state pension age, the pre 88 GMP and anything over 3% post GMP would have been index linked through the State Pension ( except in certain cases where the pension had been deferred resulting in the COD being greater than the ASP).

However, when female state pension age started to move away from GMP age, women in some occupational pension schemes found that they had to wait for indexation on their pre 88 GMP and anything over 3% on post 88 GMP until they reached state pension age.

For women in public service pension schemes this might not have been the case as the scheme ( though not obliged), simply took on the responsibility for indexing the whole of the pension until SPA was reached and indexation could take place as above.

Your wife will reach state pension age under the new dispensation?

One of the consequences of this is that the indexation of GMP by the state will cease.

However, it appears that at least in the Public Service Schemes, the Scheme will be required to take over the indexation so that pensioners do not lose out.

It is unknown what will happen with private occupational schemes.

Presumable the Administrator of your wife's scheme will clarify.

boojon

Oops, perhaps I should have corrected the misconception a few posts ago, but didn't think it important at the time. My spouse is my Husband; I didn't realise my typing was so masculine.


BTW, boojon is the name of our favourite Bangladeshi restaurant.


xylophone - how does your last post differ in the case of a "bloke" who reaches state pension age at 66, seven years from now and about to take his company pension 1yr early (NRD 60)