Investing retirement lump sum

dunstonh

How about not taking the lump sum? What is the commutation factor?

Chances are that the breakeven point is well within your life expectancy. Sometimes within a decade. So, taking the lump sum may not be the financially best option.

VLS is great for 10k or so. However, for large amounts, you do better.

Dr_Wu

dunstonh wrote: »

How about not taking the lump sum? What is the commutation factor?

Chances are that the breakeven point is well within your life expectancy. Sometimes within a decade. So, taking the lump sum may not be the financially best option.

VLS is great for 10k or so. However, for large amounts, you do better.

Have to take the lump sum Dunstonh. It's the NHS 1995 scheme. The only option to commute is to take less monthly pension for a bigger lump sum (think it's 12:1). I'm taking the basic min lump sum for exactly the reasons that you suggest.
I'm also starting to think more carefully about VLS having had the time to read more of the discussions here. The exposure to bonds in the 20/40/60 now concerns me given the likelihood of a rise in interest rates.
Still, it's a nice problem to have when I think back to our time as student nurses in the mid-'80s when the weekly shop involved a choice between tea or coffee, we were incoming calls only on our phone and letters from the bank informing us that we'd incurred £25 charges for bounced cheques were commonplace.

.....waits for '4 Yorkshiremen' type reply at this point!

Malchester

I am coming up to taking a lips pension when I reach 60 and thought it would be good to take the maximum lump sum to reduce my tax as I am still working. However when I worked the figures out the break even point was only around 6 years so I would be losing out by the time I retired with a state pension along with others that are payable then. The rate is 12:1

Dr_Wu

I realise this may be a dumb question but.... would it be a) possible and b) a good idea, to invest my spare £400pcm which I would be otherwise 'dripfeeding' into a S&S ISA into a SIPP to take advantage of the tax breaks associated?
Bear in mind I will be retiring shortly at 55 and taking my final salary occupational pension. If this was possible I would imagine contributing to it for 10 years then taking it as an additional pension at 65. I've only used about 55% of my LTA. Feel free to point out the massive hole in my logic I've probably overlooked here!

bowlhead99

If you absolutely have to take that NHS pension at age 55 with the lump sum and have no choice to defer it and take a bigger amount (strange scheme, as 55 is damn early to retire unless you were in a select few careers) then you are going to end up with cash outside a pension from that scheme that you need to plan to invest because you don't actually need to spend it.

So, if you have money now - in or before the year of retirement - it is likely to be pretty much 'spare' (because of the wall of money coming your way whether you like it or not which will max out your ISA allowances etc). Therefore, yes, makes sense to invest your spare money into a personal pension to take advantage of tax relief - limited by your salary and annual / lifetime allowance.

But you do have to consider not just the lifetime allowance (which has plenty of headroom) but also the annual allowance. For example if you got a payrise this year and have now worked half a year this tax year at a salary of £80k, and now you are going to get 30.5 /60ths of an £80k salary every year in retirement instead of 30.0 /60ths of a £75k salary, the imputed 'value' of your pension has already increased by over £50k this year thanks to the funding your employer is providing ; there is perhaps no headroom at all within your 2017/18 annual allowance to make your own personal contributions, unless you have a lot of carryforward capacity from prior years. Numbers made up to give an example, not a guesstimate of your personal circumstances.

For the years aged 55-75 if you don't have any employment income any more because you retired early and don't want any other sort of job, but you have plenty of lifetime allowance capacity, you can make annual contributions and still get tax relief but those will be limited to £2800 net / £3600 gross each year if you're not earning more than that in salary or self-employed business income. You can draw some / all of that personal pension out age 55 or 65 or 75 or whenever you like and get a tax free lump sum and the balance taxable.

elephantrosie

out of topic question.. how do you get to retire at 55 as a nhs doctor?

ewaste

elephantrosie wrote: »

out of topic question.. how do you get to retire at 55 as a nhs doctor?

More or less the same way in any job that had a good final salary pension scheme. Join it early, stay with the same employer or in the same scheme and pay in more than the minimum required for scheme membership. However the overall key is the Final Salary bit of it, which isn't on offer to new employees and in many cases the schemes have shut to further accrual even from existing members.

Part of it is essentially luck as a lot of people didn't, and still don't, recognise what they had so there are plenty of people who left employers with final salary schemes chasing higher incomes and often a better work life balance. If you managed to join a company or organisation with a final salary scheme and stuck with it, especially an employer that kept the scheme running longer than average, you were either on the ball or lucky.

Dr_Wu

elephantrosie wrote: »

out of topic question.. how do you get to retire at 55 as a nhs doctor?

A bit complicated this...

The Dr Wu in my username just refers to my favorite Steely Dan song!

I do (coincidentally) have the title Doctor by virtue of my PhD (I'm a psychotherapist with a nursing background).

I joined the scheme in 1985 and was given Mental Health Officer status which allows for a normal retirement age of 55 and a doubling up of pension (i.e. 2 years for every one) after 20 years service. When the pension review came in after the Hutton report, I was close enough to retirement age just to be left alone on the 'old scheme'. I really have been very fortunate.

Thanks by the way Bowlhead99, that's a hugely helpful and detailed answer.