Royal Mail pension - taking lump sum at 55?

maidencrew

I'm a little confused. My husband has worked for Royal Mail for 30 years. At 55 he was given the option to take a lump sum from his pension which he didn't take. On speaking with his RM colleagues many it seems have taken the lump sum and think my husband is crazy for not doing so. What are the advantages and pitfalls of taking the lump sum early?

Bravepants

It depends on what the lump-sum is needed for. Holidays, pay off mortgage, investing in an ISA, general spends?

You have to bear in mind that you are giving up a portion of an index linked pension for life if you take the lump sum. You might ask him to check out the commutation rates...that is how much will his pension drop in yearly income for each pound of lump sum. For example, some pensions typically commute at a rate of £1 drop in annual pension for each £12 of lump sum.

You might also think about the security of a higher annual pension compared to a lump sum now and reduced pension. How much is your income compared to what you intend to spend?

Some of his mates might be thinking..."better to have the cash in my hand rather than the Royal Mail's." But retiring at 55 you might live for another 40 years, whereas your lump-sum might be equivalent to 25 years' worth of the extra pension you lose. Do you want to live on a reduced pension for 40 years?

I am due a portion of a work pension at 60...I will NOT be taking the lump sum.
I have additional savings for any big spends I might need.

Bravepants

I guess what I'm saying is don't let your husband be subject to peer pressure! Just because his mates are all fired up about getting a 5 or 6 figure lump sum, don't blindly follow the same path.

Do your own maths and figure out what YOU want out of life.

Stubod

...+1 for the above advice.

A lot of people see a pile of "instant money" and get carried away. If you have loads of other pensions and some current debt then it "may" be worth considering, but without further info about your financial / health situation it is difficult to comment.

All things being equal, and with no other info to hand I would always suggest not taking any lump sums out if it will reduce your "index linked pension for life.

My OH has an NHS pension and they "have" to take out a minimum lump sum, but if we had the option I would rather not take it and have a larger ongoing pension instead. (Each to their own..)

Silvertabby

From experience (retired LGPS administrator) I would say that at least 95% of LGPS pensioners take the maximum 25% tax free cash despite the derisory 1:12 commutation rate.

See big number - get stars in eyes - ignore other options.