TPS, voluntary redundancy and early retirement

bournefree

Hi, I am an old scheme member so my NPA is 60. I am 58. If I apply for early retirement they make up the pension to 25K with a 75K lump sum (1.5 years to 60). Questions:
1. Is it better to go for this than severance of 30K plus reduced pension and lump sum (23.5K pension and 70K lump sum). I'm thinking of asking for Dec rather than the end of July - any thoughts on which would be better financially?
2. Can I put my lump sum in a personal pension / SIPP and then draw on this, or are there restrictions on this?
3. If I get another job, e.g. in teaching (which I doubt), could I opt out of the TPS and put in a personal pension? I know I'd have to leave 4 weeks to avoid paying anything back if I had severance.
4. If I found another job, e.g. which had the LGPS, would this affect my TPS pension at all? Would it be better to just put it into a personal pension - I understand this gives y you greater freedom, but don't know any more than this. I know that otherwise I wouldn't be able to get this second pension until 66, my State retiring age.

All advice greatly received :T

mgdavid

How is this different from your other thread? It might have been better to carry on the previous one for continuity and to save repeating stuff?

kidmugsy

Severance => you get extra tax-free capital of £(70 + 30 - 75)k = £25k. It costs you a taxed £(25 - 23.5)k = £1.5k p.a. gross = £1.2k p.a. net of 20% income tax. Put it the other way round: by sacrificing £25k of capital you could gain another £1.2k p.a. net of income.


If someone offered you an index-linked annuity at age 58 that paid 4.8% p.a. (i.e. £1.2k p.a. x 100%/£25k) you might well take it: it's much higher than commercial annuities pay. You won't find any index-linked investment for your £25k that pays anything like that (except maybe making voluntary NICs to boost your eventual State Retirement Pension). The extra income would be longevity insurance and, since it won't require management when you are old and muddled, it would in a sense be dementia insurance.


But if it so happened that you have a compelling, urgent use for the extra £25k capital, or not much use for extra pension (e.g. because you have an objective reason to expect a short lifespan), then you might reverse the decision. For example, you might aim to spend the £25k across the next 8 years until your SRP begins.

To give you some context, people in the new-style state pension can defer taking their pension for a year in return for 5.8% extra pension. Once you allow for their greater age (for you it would be 66) and the fact that they'd lose a whole year of state pension (perhaps one year = 5% of their remaining life), that deal is feeble compared to the deal you'd get by preferring early retirement to severance.

bournefree

Thank you kdmugsy, that's helpful.