Grans Lump Sum

CalM_2

My 86yr old gran gets a pension of roughly £148 a week from the government.

She also gets her late husbands pension from the coal board of £255 a month, then a extra £171 every 3 months on top.

Today she received a letter from the coal board offering her a lump sum of roughly £19k, which is taxable etc

She has no savings due to being ripped off a few years ago by a relative, and has roughly £2k in debt she is paying off for windows etc.


I think she should take the lump sum, clear her debt.

What do you guys think she should do, and where to put the rest once she has cleared the debt etc.

xylophone

Is there any reason why she should not live into her nineties? ( I have known four nonagenarians - an acquaintance has just celebrated her 100th birthday ( and received the telegram from the Queen and one from Iain Duncan Smith for the DWP....).

She would pay tax on the lump sum.

Her state and widow's pension are index linked.

If she can manage on her state and widow's pension and is finding that she can manage the repayments for the windows, why should she take the risk?

princeofpounds

You need to find out what that £19k would cost her in terms of lost future income.


At the same time, find out if she can take a value between 0-19k, or if she has to take the full amount.


It is quite likely that taking the money would be a bad idea, as it will probably cost her quite a bit in terms of future income. I don't know that particular pension scheme but older 'defined benefit' pensions tend to be over-generous on the income side.


It might feel that she could pop her clogs at any moment, but unless she has a specific health concern right now, her life expectancy is still ~7 years I believe. It's counter-intuitive, but the older you get, the longer your life expectancy actually is (because the statistics get skewed downwards by people who die from problems that emerged 'early'). And that's only average - she could live 7 years beyond that again.


Then, what are the terms on the debt she has? If the interest rate is low, and she can make repayments, she shouldn't worry about it at all.


If the interest rate is high, then there might be a case for taking a lump sum to pay it off. But we need the numbers to know.

missbiggles1

If she had no other income she'd be eligible to claim pension credit which would top her SRP up to £151.20pw and enable her to claim help with her council tax as well.

https://www.gov.uk/pension-credit/overview

AnotherJoe

I would be confident this lump sum is an all or nothing offer to get rid of the liability.

I'd also say its a lousy offer because if she lives as long as might be expected, she would get back at least 2x on the current pension, what this one off payment will provide. DOnt forget, if she gets the lump sum, first she gets taxed on it and then there is a double whammy of most likely reducing any benefits she gets due to having over a certain amount in savings. So it will tun out to be a lot less than £19k she actually gets.

So unless she's at deaths door she should keep on with the current pension money coming in. She can use that to clear her debt. If she cant, then how on earth is she going to manage when the lump sum runs out, which statistics say it will far before her life expectancy? (about half way through in fact)

Perhaps you could look at what the interest rate on the windows loan is, and look to pay it off yourself and have her pay it back to you from the pension? She should be able to pay that off in six months from the coal board pension. If she cant because she needs every penny, then I'd reiterate, whats the plan for when the £17k (or less) runs out in only 4 years? Which is why taking the lump sum is a lousy idea.

xylophone

If she had no other income she'd be eligible to claim pension credit which would top her SRP up to £151.20pw and enable her to claim help with her council tax as well.

See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

"Once you (or your partner) reach the qualifying age for Pension Credit, you are expected to use
your pension(s) to help support yourself. If you choose not to buy an annuity after reaching the
qualifying age for Pension Credit, an amount of “notional” income will be taken into account
when your benefit is worked out. “Notional” income (in this case) is an amount equivalent to the
income you would have received if you had bought an annuity.
If you take an income from your pension pot, the amount which will be taken into account when
assessing your benefit will be the higher of the actual income or notional income. If you take a
cash lump sum, this will be taken into account as capital."

The OP's grandmother should check very carefully....

missbiggles1

xylophone wrote: »

See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

"Once you (or your partner) reach the qualifying age for Pension Credit, you are expected to use
your pension(s) to help support yourself. If you choose not to buy an annuity after reaching the
qualifying age for Pension Credit, an amount of “notional” income will be taken into account
when your benefit is worked out. “Notional” income (in this case) is an amount equivalent to the
income you would have received if you had bought an annuity.
If you take an income from your pension pot, the amount which will be taken into account when
assessing your benefit will be the higher of the actual income or notional income. If you take a
cash lump sum, this will be taken into account as capital."

The OP's grandmother should check very carefully....

Thank you for the correction, I can see I may be mistaken, although it could be worth checking.:)

CalM_2

Thanks for the replies, i have read them all and have changed my mind due to what i have read, at first i thought she should take it, now having read what you guys have replied i think it would be better to actually continue receiving the payment monthly, as far as i am aware there is no health concerns.

So thanks, this is why i asked here first because i knew you guys would give some great advice.

brewerdave

If the £19k is to buy out the whole of her Coal Board widow's pension, then its a miserable,miserly offer !!