To take the maximum lump sum or not?

millerfamily5

Hi

I will be retiring end of March 2017 (age 65) or possibly March 2018 (age 66). I will have over 35 years on NI contributions so I believe I will get a state pension of about £148 per week. I will probably defer my state pension until I retire.

With my professional pensions and a Freestanding AVC pot (of about £27000) I believe I will have a pension per annum of about £24000 (with a lump sum of about £30000) or a pension of about 20500 and a lump sum of about (£79000). I am a local authority employee.

My wife (a college lecturer) and I own our home and have no debts, but will still have two children at University and one who is about to finish this year hopefully employed. My wife is working and 10 years younger than me so likely to be working for a while longer yet.

Is there any value in taking a larger lump sum and then investing some of it in ISAs or any other tax efficient way?

Any other general advice about planning for retirement would be very much appreciated also.

Thanks

Richard

greenglide

If you have been in contracted out employment for most of your working life you are unlikely to get a state pension of £148 under nSP.

Remember as well that under nSP the reward for deferring state pension drops from over 10% to just over 5%. Still good value but it is no longer inheritable which could be significant for a male with a spouse 10 years younger?

xylophone

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

http://www.thisismoney.co.uk/money/pensions/article-2942928/Over-55s-apply-new-state-pension-forecasts-DWP.html

https://www.gov.uk/state-pension-statement

re new state pension

kidmugsy

millerfamily5 wrote: »

My wife is working and 10 years younger than me so likely to be working for a while longer yet.

If taking the larger lump sum were to reduce not only your own pension, but also your wife's widow's pension, then I'd think twice about it. A younger wife could be drawing a widow's pension for a long time.

Also, think carefully about the options for your AVC. For example you could (presumably) transfer it to a personal pension with the intention not of drawing it, but instead nominating your wife or children as beneficiaries, and just let it trundle on until your death. Or you could transfer it with a view to drawing it down rather quickly so that you can enjoy it while you are relatively fit and well. Or you could use it to boost your LGPS pension or lump sum.

On the whole the terms you are being offered for buying extra lump sum aren't particularly attractive, though if you have a bad heath record, or are from a short-lived family, they might interest you.

quotememiserable

I doubt you'll beat the extra pension by investing the extra lump sum, plus then you have to deal with all the risks - echange rate, interest rate, inflation, longevity, which are all carried by the scheme if you take the pension. I'd say it's better to take the pension, unless you have some specific need for the money now.