Lump sum or not

Bazzh

Coming up for 70 in good health, retired 2 months ago. In receipt of state pension £201 per week. Also £190.000 in savings. I now have to decide what to do regarding my final salary pension. I have been offered a annual pension of £9233, or a lump some of £39000 and a pension of £5863. Is it still worth taking the higher pension of the two, given my age. My OH also has a income of £16000 per annum.

kidmugsy

If you opt for the smaller pension, does that mean a smaller widow's pension too, or is that unchanged? How old is your spouse?

Bazzh

Hi Kidmugsy, The widows pension is the same on both options. She is 73.

atush

Will the income provided by the lower pension be enough to live comfortably?

Do you have heirs you would like to see inherit (or gift now) the 39K?

Bazzh

If I opted for the lower pension, with my OH's income, we would have a combined sum £31000 per annum net. No mortgage or debt. So would be ok for some years to come. No gifts in the offing. I have also thought about deferring it longer, and using some savings, as increases of 8.5% are applied for each deferred year.

atush

You could also defer your state pension (can do this once even if you have already started taking it) as it get revalued at 10.4% higher for each year (prorated)

kidmugsy

atush wrote: »

You could also defer your state pension (can do this once even if you have already started taking it) as it get revalued at 10.4% higher for each year (prorated)

If both of the couple did it, even just for a year or two, it might be a good way to "invest" any of their capital that happens to be outside tax shelters.

Bazzh

I did defer my state pension for 3 years and 9 months, i understand it can be deferred one more time. Is that correct? If so, do you think it's a good idea to do that, and use savings for a while, rather than take both pensions?

jamesd

Bazzh wrote: »

I did defer my state pension for 3 years and 9 months, i understand it can be deferred one more time. Is that correct?

Yes, if you deferred the first time by not claiming it at the start. After claiming you can defer exactly once more.

Bazzh wrote: »

If so, do you think it's a good idea to do that, and use savings for a while, rather than take both pensions?

The commutation rate for the pension income into lump sum is around 11.6 to 1. That's pretty poor and requires 8.6% plus inflation to match it. Poor though it is, you can beat it by deferring the state pension to get 10.4% inflation-linked and mostly inheritable. So if you do want higher income from the pension it could well make sense to take the lump sum and use it to fund deferring the state pension again.

Given your assets you might also consider some VCT use, since you can get around 10% tax free from the Albion VCT or around 11.15% tax free from Crown Place, after allowing for the 30% tax refund. The tax refund is capped at your income tax actually paid in the tax year, HMRC will adjust your PAYE tax code to deliver it during the year if you tell them about a purchase you've already made. Albion is 100% asset-backed (secured on property), Crown Place partly.

atush

I would defer the younger spouses's pension if different from before, or the one who is likely to lve longer due to personalised LE