Commutation factor

saver861

zagfles wrote: »

Actually you weren't far off if you take tax into account! The income will be taxed, the lump sum won't, so the £9.9k income becomes £7.92k net, 102.5/7.92 = 12.94!

Still pretty dire, mind. Though fairly typical.

Well, if you factor in to interest to the LS from day one, at 3% would give an extra very roughly £40k or so after 11 years. However that would have to be compared against saving the extra £8k annual pension for the same period so would reduced the £40k figure.

It would add a couple of additional years to the breakeven point - at outside would be around 15 years taking the OP to 76. If in good health he should be around for another 10 to 15 years after that thus making LS option a non runner.

Worried_of_wakefield

saver861 wrote: »

Well, if you factor in to interest to the LS from day one, at 3% would give an extra very roughly £40k or so after 11 years. However that would have to be compared against saving the extra £8k annual pension for the same period so would reduced the £40k figure.

It would add a couple of additional years to the breakeven point - at outside would be around 15 years taking the OP to 76. If in good health he should be around for another 10 to 15 years after that thus making LS option a non runner.

- yes, of course your right saver861, having checked my spreadsheet, as well as factoring in interest at a nominal 2.5% year on year, I had been drawing down by a % as well ( no point in having a pile if you aint allowed to spend it!), hence the breakeven point of age 80]

I've applied to my pension provider for a quote on a much reduced LS which is probably the route I'l settle on.

thanks again all

xylophone

And have you obtained your new state pension statement?

saver861

Worried_of_wakefield wrote: »

- yes, of course your right saver861, having checked my spreadsheet, as well as factoring in interest at a nominal 2.5% year on year,

Yes - the figures I used earlier were on the top of my head as I typed but they would be roughly within the correct boundaries. You do have to consider inflation also of course but currently 2-3% interest gives you a nearly a couple of percentage above current inflation.

That said, personal inflation might be different.

And, as xylophone says, best get a pension statement also.

ischofie1

I think taking a reduced LS may be a good option.


From a pure financial stance, taking no LS would be best.
From a personal perspective (which only you can answer), having a large stash of money at the onset of retirement has a lot going for it.


I'm 5 years off retirement but I've planned for a stash of cash at the onset that isn't "earmarked" for anything in particular.
I'll probably use it for travelling to many far flung places for the 1st couple of years but in truth, I'm leaving my options open.
I just think it's good to kick off retirement in this way. Others may think differently


Regards.

GunJack

Worried_of_wakefield wrote: »

I have a Defined Benifit pension ( defered) due for collection at age 65, approx 3 1/2 year from now. I'm being quoted £25.3K full pension or alternatively £15.4K + £102.5K LS.

even if you could give up, say, 2k of pension for a 20k-ish ls, that would be a nice way to enter retirement... personally having that cash buffer would be a useful safety net...

HappyMJ

GunJack wrote: »

even if you could give up, say, 2k of pension for a 20k-ish ls, that would be a nice way to enter retirement... personally having that cash buffer would be a useful safety net...

But....you could borrow about £15,500 as a personal loan over 7 years to have this "cash buffer" put the money into high interest current accounts and make the repayments from the additional pension each month (£166.67) and the interest earned month (£38.75 - Santander 123 Account) costing about £206.57 per month (source - Sainsburys Bank) and after 7 years you would have £2,000 more income per year (most probably plus inflation) and have £15,500 in the bank if it was never used.

You've got your "cash buffer" for less cost.

GunJack

HappyMJ wrote: »

But....you could borrow about £15,500 as a personal loan over 7 years to have this "cash buffer" put the money into high interest current accounts and make the repayments from the additional pension each month (£166.67) and the interest earned month (£38.75 - Santander 123 Account) costing about £206.57 per month (source - Sainsburys Bank) and after 7 years you would have £2,000 more income per year (most probably plus inflation) and have £15,500 in the bank if it was never used.

You've got your "cash buffer" for less cost.

hell of a lot of hoops to jump through to achieve this, though, and no good if you drop dead in 3 years....

jamesd

Worried_of_wakefield wrote: »

I'm wondering if I could be cutting my nose off to spite my face by not enjoying the treats a LS could provide from age 65-80.

A couple of possible approaches:

1. borrow from your future self, say with a mortgage
2. the higher guaranteed income allows you to take more money from income drawdown of other pensions or savings and investments without having a substantial chance of major income reduction, so benefit in that way with the higher income from those sources.

One other thing that you can do is say arrange to have a higher income from your other savings and investments before age 80 with the intent to rely on this pension as a higher percentage of your income after that age. That is, deliberately running down at a faster rate your other assets. This is something you can simulate in cfiresim by adding some fake income starting when you want to take a reduced income - say 1k fake income if you want a 1k reduction.

Part of this is about other resources which I assume you have.

jimi_man

jamesd wrote: »

A couple of possible approaches:

1. borrow from your future self, say with a mortgage

Out of interest isn't that exactly the same as taking a lump sum from a pension? You are effectively borrowing from your pension and then paying it back over the rest of your life, just at a slightly worse interest rate than a mortgage and with no set term.

I'm in a similar position in a few months. My commutation factor is 22 but that's massively offset by the fact than I'm 51, so it probably amounts to about the same as 12 when you're 60.

I'm following the thread with interest though.