Need advice on a couple of pension options

alpha_male_2

Hi there everyone, from a newbie.

I have just taken redundancy and have received a form from my pension provider in which I have to let them know how I want to take it i.e. lump sum, deferred payments etc.

My dilemma is that one of the options is to take a set annual pension with a tax free lump sum, the other is to take a reduced annual pension but a bigger lump sum almost twice as much.

The amount I would be giving up in my pension is around £2400, but I would be getting almost 13 times this as part of my tax free lump sum.

Based on the fact that I'm now 59 and in good health, would I be better taking the greater lump sum or, as I feel, take the lesser lump sum and higher pension which if I live more than 15 years, would work out more than what I get in the bigger pay out?

Thanks you for your feedback.

hyubh

alpha_male wrote: »

The amount I would be giving up in my pension is around £2400, but I would be getting almost 13 times this as part of my tax free lump sum.

That's not a good rate, unless you have a very good use for the extra up-front cash (maybe you do). Is this a public sector scheme with a 12/1 commutation rate...?

take the lesser lump sum and higher pension which if I live more than 15 years, would work out more

Plus the fact the extra pension, lost forever if you commute, will be index linked...

kidmugsy

If you need a bit of capital briefly, borrowing is very cheap at the moment. Giving up index-linked pension at that commutation rate is a very expensive way to get capital.

alpha_male_2

Thanks guys,
Yes it is a public sector pension, but most of my pension is on the old 1/80th scheme which comes with the lump sum. Only the last 7 years are based on the 1/60th scheme whereby you can defer a portion @ the rate of 12:1 and theres not enough there to worry about it.

Don't really need the cash injection urgently.

mgdavid

at 59 and in good health you expect to live aound another 30 years so opting for the higher pension means you will be quids in. Don't forget it's indexed annually so it's far more reliable and less risky looking forwards than taking a large lump sum and investing it yourself.

alpha_male_2

Hi mgdavid
Thanks for that, you all seem to be voicing my own thoughts. Taking the higher payout is only a short term gain (which the pension company would love as it would cost them less in the long term), so I'll go for the lower pay out and higher pension.

Thanks again.