lump sum or yearly

shoi

I have a defined benefits pension just come due, where they are offering me a lump sum alternative (which they call triviality!)

In round figures it's 600 per annum, enhanced 5% every year, or 20K gross lump sum. Excel tells me the breakeven point is about 20 years. I'd have thought the lump sum would be the better choice.

I'm treating this as an investment question, the 20K lump sum would just go into savings.

As regards tax (I live in France) the lump sum benefits from a mitigated 7% tax, income goes at 14% or more.


And second, are these people open to negotiation does anyone know, if I say how about 25K? do you think I'll get anywhere?

(This is a corrected version of a question asked a few months ago, apologies to those people whose time I wasted)

Thanks

dunstonh

I have a defined benefits pension just come due, where they are offering me a lump sum alternative (which they call triviality!)

Triviality is the term used for pots under £30,000.

I'm treating this as an investment question, the 20K lump sum would just go into savings.

Why not leave it in the pension then?

shoi

Thanks for the reply

Why not leave it in the pension?

Because I reckon it takes the yearly pension 20 years before it overtakes the lump sum. A few years later than that if you say the lump sum earns interest along some way. Longer again if you do some NPV/inflation sums

Because for lack of any better info my life expectancy is indeed 20 years (age 85). It seems quite likely that 1500pa (600x1.05**20) will indeed be trivial by that time.

Because if were to die before then the lump sum (or what remains of it) would quite likely exceed what is paid to my missus ("5 years fully protected")

jem16

shoi wrote: »

Because I reckon it takes the yearly pension 20 years before it overtakes the lump sum.

I think dunstonh was meaning to leave it invested within the pension tax wrapper as opposed to taking an income from it.

However I think he possibly missed the fact that it is a Defined Benefits pension and you can't do this as you have no option but to take it in some form.

kidmugsy

jem16 wrote: »

I think dunstonh was meaning to leave it invested within the pension tax wrapper as opposed to taking an income from it.

However I think he possibly missed the fact that it is a Defined Benefits pension and you can't do this as you have no option but to take it in some form.

Why doesn't the OP ask for a CETV? Then he could leave it in a tax shelter. Or would it be possible to take the lump sum and bung it into a French tax shelter?

jem16

kidmugsy wrote: »

Why doesn't the OP ask for a CETV? Then he could leave it in a tax shelter.

There is that possible option but may not be just as easy given the issues at times with DB transfers.

mania112

the cetv is £20k right? he's got the option to take triviality so this would be the cetv unless i'm missing something? (or by cetv do you just mean to transfer the pension?)

you will be given 25% of this tax free, and they'll take 20% off the rest in tax by default i'd assume. If you can claim it back and pay a lower rate under French rules is beyond my expertise.

No, you can't negotiate the figure. Although no harm in trying i suppose.

You can pour figures into spreadsheets and be confident you know what is financially the more profitable route, but these types of questions are better answered by your situation, lifestyle and personal preferences.

shoi

Thanks everyone.
It looks like plan A (lump sum) isn't wrong. My fortunate situation etc is such that the most profitable route is the best route.
Now to get the French tax office to sign off on the double taxation forms (last time it went ok but we did have a sweet baby with us which definitely helped).