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Lump sum take it or leave it

Decision time,rapidly approaching 55 with indexed linked final salary pension about to start.Will be working in UK for one more year then possibly moving abroad(or travelling)I have no property and £88k savings.Better to take £5800 pension or £4100 and £27k? Either way pay pension into trickle down account(??) for one year? As my plans are not definite would it be better to take higher pension or would the lump sum give me more flexibility? Any thoughts appreciated.

Comments

  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    How much are you due to get in state pension(s) and when?
    Trying to keep it simple...;)
  • State pension as of April 2005 £82pw
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    Invested @ a 5% return the 27k would generate 1,350 in income, while you would forgo 1,700 from the pension.But by around 2011-2012, if you take the lower pension you should be able to receive all pension income tax free (allowing for overall growth via index linking) whereas with the higher pension you will lose some in tax, not so with the income from the capital.

    So I would go for the lower pension and the capital sum.
    Trying to keep it simple...;)
  • NAR
    NAR Posts: 4,863 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    I agree with EdInvestor but for slightly different reasons. Unless you think you are going to really need a higher pension to live on, then I would take the higher lump sum every time.

    Why I hear you ask? The majority of us will have the health to enjoy spending it over perhaps the next 10 years or so and say I'm really glad I done that. Whereas as you get older you may find that health does not permit you to do one or two extra "adventures" a year and then may regret not having done certain things when you were younger, fitter and had the money to do it.

    So what if it costs you money if you live to be 100; my opinion is as you get older you will need less money to live on, as you eat less, travel less and have less overheads.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    ciao wrote: »
    Will be working in UK for one more year then possibly moving abroad(or travelling)

    You need to save up like mad for the final year then.Don't underestimate how much it costs to set up in a foreign country.This alone would suggest you should take the extra capital as your investment fund is not very big (and nor is your pension income.. )
    I have no property

    Quite a major disadvantage.A place at home can be rented out while away to cover rent in the place you are living.It can also be used to generate income by taking in a lodger.
    Either way pay pension into trickle down account(??)
    ]

    Note quite sure what you mean by this. How much do you earn? You need to look at the tax situation.
    Trying to keep it simple...;)
  • Thanks for the comments. I think I have seen the term trickle down accounts describing those that advertise very high interest but can only pay in every month, any suggestions welcome. I agree on the property comments but I hesitated on buying, the prices spiralled and the market seems uncertain at the moment. If my relationship works out setting up abroad not such a problem (will be in partners homeland ) otherwise travel beckons. Problem is trying to cover all aspects. I am a lower rate tax payer. Please excuse any cockups I make on here as new to this.
  • chesky369
    chesky369 Posts: 2,590 Forumite
    How did you manage to get a state pension in 2005 when you're still only 55?
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    ciao wrote: »
    If my relationship works out setting up abroad not such a problem (will be in partners homeland )

    Which country is that? This is 'another aspect" :rolleyes;
    I am a lower rate tax payer.


    Do you actually mean lower (10% ) or rather basic (22%)?
    Trying to keep it simple...;)
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