Take higher lump sum and less pension???

twarde

I'm about to recieve my index linked final salary pension from a previous employer at the age of 50. I have two options to consider.

£29118 lump sum and £9706 annual pension or
£55427 lump sum and £8314 annual pension.

I'm tempted to take the first amount, but I have spoken to two people who have taken the higher figure on the basis that it's tax free, it's cash in the bank that you can invest and won't lose it if you die early.

I have no urgent need for a cash sum as I have no mortgage/debts. I am looking to get the highest income so I can work part time. I have no health issues, so could be drawing the pension for 30 years - but you never know what will happen in the future.

Your opinions please?

Newly_retired

If you take the larger lump sum you can either invest it or put it on a savings account or fixed rate bond, given the good rates at the moment, and use the interest as additional income to boost the slightly lower pension income.

Judwin

twarde wrote: »

I'm about to recieve my index linked final salary pension from a previous employer at the age of 50. I have two options to consider.

£29118 lump sum and £9706 annual pension or
£55427 lump sum and £8314 annual pension.

I'm tempted to take the first amount, but I have spoken to two people who have taken the higher figure on the basis that it's tax free, it's cash in the bank that you can invest and won't lose it if you die early.

I have no urgent need for a cash sum as I have no mortgage/debts. I am looking to get the highest income so I can work part time. I have no health issues, so could be drawing the pension for 30 years - but you never know what will happen in the future.

Your opinions please?

I assume the lump sums are tax free, but the income part is taxable at 22%?

If so, the difference between the lump sums is 26300, and if you were to put it in a simple saving account (not reccomended long term) like the A&L paying 6.3% gross you'll get an 'income' from that of £1657 p/a taxable at 20%

The difference between the two possible pension incomes is £1392, taxable at 22%.

Your pension is probably index linked, so will go up, whereas the savings income isn't. But if instead of a simple savings account you invest it (via SS ISA for you and the missus, over several years £14K this year, £14.4K next and so on), then I'd have thought it should be possible to bridge the income gap AND index link it, and more.