Larger annual pension or smaller and larger lump sum?

jamesd

It's also worth wondering whether it's best to take this pension when you retire. There's normally a reduction if you take a defined benefit pension before the normal retirement age of the scheme. So if it isn't 55 for your scheme it could pay to wait a while if you have savings and credit available.

For those who are about to retire, contributions to a personal pension are a great deal because you can get the tax relief then take out the money soon after you put it in.

You're allowed to pay in an amount that with 25% tax relief added is equal to your whole pay in the tax year you pay in. There's also a limit of £40,000 a year that includes the increase in value of any defined benefit pension during the year. You can carry forward unused allowance of this sort for the past three tax years so it's usually just pay that matters.

When it comes to take the money out the first 25% is tax free the rest is taxable in the tax years in which you take it. If you aren't claiming the work defined benefit pension yet that could mean the whole of your income tax personal allowance worth can also be taken without any tax being due.

It's very easy to open a personal pension online or by phone at places like Hargreaves Lansdown these days.

The gain from making the pension contributions is bigger than the gain from leaving money in an ISA.

grumpyoldgal

Thank you all very much for your very informative replies

GG

jamesperrett

Silvertabby wrote: »

I'm a retired LGPS administrator. From experience, between 85% and 90% of LGPS pensioners take the maximum lump sum despite the poor 1:12 commutation rate.

Did you send them on pre-retirement courses? I've just been on one funded by my employer and I would highly recommend staff going on one if you want to understand the financial aspects of retirement. However, one of the people taking the course (an ex financial adviser) was trying to persuade us fairly strongly to take the maximum lump sum rather than the standard lump sum.

It is also interesting that my pension estimates show the maximum lump sum calculation as well as the standard lump sum (but never the effect of reducing the lump sum).

Northamptonblue

Acquinas wrote: »

Commodities priced in dollars in the main. As with oil. Sterling depreciation will do at least as much damage as tariffs. But, a simple case study might be this. A kilo of French Brie currently, say, £10. Factor in sterling deprecation and that's £12. Revert to WTO tariffs (i.e. end of single market) and that's £13.20. Now I want my wages to go up. So we have a wage/price spiral that could go on for years as it did in the 70s. All the flag-waving and Spitfire avatars are not going to change that.

Or people will switch to Somerset Brie which would be a win, win.

enthusiasticsaver

My husband retired at 58 last year and I retire this December at 57. He took the larger lump sum and an annual pension of £24k with the view he would pay more tax if he took the higher annual pension and we knew we could live off £24k. We invested the lump sum in stocks and shares isas and a sipp for me leaving a large cash sum available for drawdown over the next 7 years. As my pension is smaller I am taking the higher pension and smaller lump sum.

Personally I would have thought getting rid of the mortgage should be a priority but it is entirely a personal choice. Can you live comfortably on £16700?

Silvertabby

“ I'm a retired LGPS administrator. From experience, between 85% and 90% of LGPS pensioners take the maximum lump sum despite the poor 1:12 commutation rate.
Originally posted by Silvertabby ”


Did you send them on pre-retirement courses? I've just been on one funded by my employer and I would highly recommend staff going on one if you want to understand the financial aspects of retirement. However, one of the people taking the course (an ex financial adviser) was trying to persuade us fairly strongly to take the maximum lump sum rather than the standard lump sum.

It is also interesting that my pension estimates show the maximum lump sum calculation as well as the standard lump sum (but never the effect of reducing the lump sum).
Posted by jamesperrett

LGPS pre-retirement courses are readily available, but attendance isn't compulsory - and so is rather quite poor.

Not all pension schemes offer the option of giving up some of the standard lump sum in return for a bigger pension.

I still remember my Armed Forces pre-release financial advise course. The first thing the lecturer did was to congratulate us all on reaching pensionable age with our lives and limbs intact, unlike some of our colleagues. Very true.

jamesd

enthusiasticsaver wrote: »

Personally I would have thought getting rid of the mortgage should be a priority but it is entirely a personal choice. Can you live comfortably on £16700?

The mortgage is £3,600 a year. The higher pension is £4,170 a year before tax. That's £3,336 a year after tax. If the mortgage term isn't extended that makes a person just £264 a year lower in money in pocket terms while the mortgage is still being paid. But after the end of the mortgage term better off after tax by the whole £3,336 a year for life.

Since the pension increases with inflation and the mortgage balance doesn't the £264 deficit won't last long.

It makes no financial sense to make yourself worse off by paying off a mortgage with those numbers.

ThinkingOutLoud_2

Northamptonblue wrote: »

Or people will switch to Somerset Brie which would be a win, win.

My thought exactly. And just as, if not more, palatable - just like the longer term higher pension income.

You may have to adjust thinking that cash in hand is somehow more valuable and there you are - easy decision.

Plus may be an incentive to try our our superior alternatives... http://www.thetimes.co.uk/article/britain-now-a-bigger-cheese-than-france-j3vdn8s6g

kidmugsy

People make good "Brie" in many places. We had some delicious stuff in NZ.

ThinkingOutLoud_2

kidmugsy wrote: »

People make good "Brie" in many places. We had some delicious stuff in NZ.

Guess that is three of us at least in favour of Briexit then?