More pension income vs lump sum

Silvertabby

How much lump sum would you like to take?

This is the link for the LGPS lump sum calculator, but it works for the CS (and any other scheme which uses a commutation factor of 1:12) as well.

Just play around with the figures, to see which suit you.

Add:

If you want to see how much of your benefits you'd be giving up by commuting, do this little sum:

1. Annual pension x 25 (or however many years you expect to live in retirement) plus minimum tax free cash = £

2. Reduced annual pension x25 plus maximum tax free cash = £

I think you'll be quite shocked at the result!

saintalban

Thanks yes the commutation doesn’t seem to have been 1:12. Without the lump sum my income worked out about £1400 a month after tax and after conversion of the lump sum the pension income was £1600-£1700 a month - not a huge increase but enough to cover my usual outgoings. I’m single with grown up kids - I don’t think they would benefit from my pension scheme as a partner might do unfortunately.

mollycat

Retire (very) soon on NHS sec1995 pension.

Commutation rate is 12:1.

To me it's a complete no brainer to take the smallest lump sum, (we have no option to take NO lump sum).

Although most of my colleagues disagree

Silvertabby

Retire (very) soon on NHS sec1995 pension.

Commutation rate is 12:1.

To me it's a complete no brainer to take the smallest lump sum, (we have no option to take NO lump sum).

Although most of my colleagues disagree Posted by mollycat

They're not alone - I would say that 90% to 95% of LGPS pensioners take the maximum cash as well.

mollycat

Silvertabby wrote: »

They're not alone - I would say that 90% to 95% of LGPS pensioners take the maximum cash as well.

Yep, the level of understanding in my workplace of our pension arrangements is astonishingly poor.

People have no idea how service is accrued, how to calculate or project forward what entitlements they will be due, or even to correctly identify what section of the pension scheme they are in.

Despite this, they will boldly proclaim it's a no brainer to take the largest possible lump sum as it's "tax free".

The conversation usually then moves on to what people are going to spend, (usually the entirity) of their (larger) lump sum on!!

I used to try and help out but reluctantly gave up some time ago.

kidmugsy

mollycat wrote: »

Despite this, they will boldly proclaim it's a no brainer to take the largest possible lump sum as it's "tax free".

A couple of years ago a friend asked me for advice about his DB pension: max lump sum, max pension, or compromise? I listed the pros and cons in an e-mail and remarked that for many people who dreaded being short of income, max pension would be right. For couples who were confident of having ample income then max lump sum would give them, for what might be the only time in their lives, a substantial capital sum at their disposal.

I didn't know which he'd chosen until he said they'd bought a country cottage.

Ah, the benefit of a late-career promotion for the member of a final salary scheme!

saintalban

I agree kidsmugsy that it’s a case of horses for courses whether you choose pension & lump sum or just a bigger pension. I’m in the classic scheme which as some have said isn’t fantastic value for trading in your lump sum but it still gives a pretty good return so I’ve decided to go for that. It would be different if my pension was adequate to live on alone but I don’t think it is so I’m going to enhance that as much as possible. Regular index linked income is more valuable to me than a hand out in the long run.

atush

mollycat wrote: »

Retire (very) soon on NHS sec1995 pension.

Commutation rate is 12:1.

To me it's a complete no brainer to take the smallest lump sum, (we have no option to take NO lump sum).

Although most of my colleagues disagree

That is because you are smarter than the average Cat

kidmugsy

saintalban wrote: »

I’m in the classic scheme which as some have said isn’t fantastic value for trading in your lump sum but it still gives a pretty good return so I’ve decided to go for that. It would be different if my pension was adequate to live on alone but I don’t think it is so

One good reason for some people to take a lump sum is to bridge the gap until their State Retirement Pension starts. If that doesn't apply to you, fair enough.

If you feel a need for capital when you are older you could always consider equity release on your house.