would someone be so kind as to explain this please?lgps

traveller

apologies for the lack of capitals, the key is broken

my mother has an old lgps pension, she started paying in in 1994 and left in 2004 and her benefits are now deferred benefits. she is now 64 and wishes to claim her pension.

she has 3 options-
the basic value of her benefits:
1. annual pension £3000
retirement grant £8,832.13

taking the full 25% of the value of the pension benefits with each £1 of pension given up produces an extra lump sum of £12
2. annual pension £2,500
retirement grant £15,771.61

if you only convert half your pension the following benefits would be payable:
annual pension £2,650
retirement grant 12,30181.

i have rounded up the annual pension amounts. the thing is i have no idea which she should choose or any repercussions and was after some help to her advise her. this is the only pension she has. thanks

DancingBadger

1. annual pension £3000
retirement grant £8,832.13

... would be my choice as that £3000 is presumably index-linked. She's only 64 and could conceivably live for another 30 years.

How much State Pension will she receive?

traveller

DancingBadger wrote: »

... would be my choice as that £3000 is presumably index-linked. She's only 64 and could conceivably live for another 30 years.

How much State Pension will she receive?

hi, thanks i too thought 1 or 3 at the most. she receives roughly 150.00 per week in state pension. thanks again for your reply

Triumph13

I'm surprised our resident deferment expert hasn't chimed in already! In his absence and assuming that that £150pw is basic plus SERPS / SSP not basic plus pension credit then how about:

1. Take option 2 and give up £500 of pension (presume actually £578 @12 to 1) for £6,939 of extra cash.
2. Use the cash to replace her current pension while she defers it at 10.4% pa
3. After 46 weeks when the £6,900 is gone restart the state pension - which will be over £700 higher!

Edit
A better calculation would be to have a level of income matching the £3k pension plus SP during deferment rather than the £2.5k as calculated above. Doing it that way she only defers for 43 weeks not 46, but she still ends up £3 a week better off going this route than taking option 1

traveller

thanks for your reply. i'll explain this to her

hyubh

traveller wrote: »

my mother has an old lgps pension, she started paying in in 1994 and left in 2004 and her benefits are now deferred benefits. she is now 64 and wishes to claim her pension.

she has 3 options-
the basic value of her benefits:
1. annual pension £3000
retirement grant £8,832.13

taking the full 25% of the value of the pension benefits with each £1 of pension given up produces an extra lump sum of £12
2. annual pension £2,500
retirement grant £15,771.61

If she doesn't have a need for extra lump sum she shouldn't take it (*) because the 12:1 commutation rate is very much in the pension fund's rather than the pensioner's favour. Also keep in mind the pension in payment increases by uncapped CPI every year, just like it did in deferrment.

On the other hand, don't take that to mean she should try to give up the standard lump sum, firstly because 'reverse commutation' (giving up standard lump sum for extra pension) isn't possible, and secondly because the standard retirement grant for pre-2008 membership is calculated on a different basis anyway (three times the standard pension).

(*) Edit: hmm, just read Triumph13's post. An interesting fiddle...

traveller

hyubh wrote: »

If she doesn't have a need for extra lump sum she shouldn't take it (*) because the 12:1 commutation rate is very much in the pension fund's rather than the pensioner's favour. Also keep in mind the pension in payment increases by uncapped CPI every year, just like it did in deferrment.

On the other hand, don't take that to mean she should try to give up the standard lump sum, firstly because 'reverse commutation' (giving up standard lump sum for extra pension) isn't possible, and secondly because the standard retirement grant for pre-2008 membership is calculated on a different basis anyway (three times the standard pension).

(*) Edit: hmm, just read Triumph13's post. An interesting fiddle...

Thanks for your reply

kidmugsy

Triumph13 wrote: »

Doing it that way she only defers for 43 weeks not 46, but she still ends up £3 a week better off going this route than taking option 1

Isn't it better to defer for whole numbers of five-week spells?

Triumph13

kidmugsy wrote: »

Isn't it better to defer for whole numbers of five-week spells?

The thought hadn't occurred to me that they might only work in 5 week lumps. Reading the leaflet https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372517/dwp024-102014.pdf it talks about not getting pension increases for any 'days' that you were getting certain benefits so I think they must just apportion the 1% pro-rata over periods of less than 5 weeks. Where's James when you need him?

Triumph13

hyubh wrote: »

If she doesn't have a need for extra lump sum she shouldn't take it (*) because the 12:1 commutation rate is very much in the pension fund's rather than the pensioner's favour. Also keep in mind the pension in payment increases by uncapped CPI every year, just like it did in deferrment.

On the other hand, don't take that to mean she should try to give up the standard lump sum, firstly because 'reverse commutation' (giving up standard lump sum for extra pension) isn't possible, and secondly because the standard retirement grant for pre-2008 membership is calculated on a different basis anyway (three times the standard pension).

(*) Edit: hmm, just read Triumph13's post. An interesting fiddle...

The easy way to do the comparison is to work out the 'reverse commutation' rate for state pension deferral. For every £100 of state pension you turn it into £110.40 by spending £110.40 of capital to replace the 'missing' year. That's a commutation factor of 10.615 to 1 so if the pension commutation ratio is higher then it makes sense to take some extra lump sum to defer SP for a year. Unfortunately for people as individuals (but fortunately for them as taxpayers), if you hit SPA post April 2016 the deferral ratio for a year increases to 18.24 to 1 so it's much less likely for this kind of deal to make sense then.

System

Hi

If "they" look to take the full LGPS amount, or a reduced amount and increase the state pension proprtion, the Personal Allowance is going to be £10,600 for 2015 - 16 and then just tips over into income tax liability for about £20 or so.

Really bad to have to deal with HMRC annually for such a piddling amount