BT Pension options: opinions please

Simple_Soul

skycatcher wrote: »

Without doing much analysis my thought was that the options introduced by BT over the standard offering were all designed to save the pension fund money rather than benefit the individual.... But maybe I'm just a cynic!

To be fair though, they are a Business, not a Charity. Making and saving themselves money is their job.

But, you are right: the alternative options are not as good value for money as the Standard Option (Pension, plus a TFLS of 3 x Pension).

I completely ignored two of the options I was presented with, because they had a partially non-increasing pension element in return for a higher pension to begin with. I can't see that benefitting anyone unless they think they will die within a decade.

The remaining two options, however, gave me pause.
Although not as good value as the Standard Option, they each have advantages.

The Maximum TFLS Option has, what is considered (I gathered from reading other threads in this forum), a good Commutation Factor (nearly 1:20).

I have not been able to find what is considered to be a good Reverse Commutation Factor, but I am pretty sure that the one given for the Maximum Pension Option (nearly 30:1) is dire.

When I took Voluntary Release 10 years ago, I converted my entire lump sum (£47.5k) to increase my pension. It upped my pension from £8.4k p.a. to £12.9k, which equates to a Commutation Factor of about 10:1. (RPI inflation increases have since upped the pension to £15.8k p.a.)
That was a good move, and I am very pleased I did it.

Nevertheless, I am still considering the Maximum Pension Option. Although it will be painful to part with £47k in return for an extra £100 p.m. after tax, it does equate with an interest rate of 2.6% , which is more than I am currently getting in my 5 year Cash ISA. Also, it gives long-term, albeit partial, inflation protection. In addition, the majority of the replies on this thread seem to think that it is the best option for my circumstances.

PeacefulWaters

I completely ignored two of the options I was presented with, because they had a partially non-increasing pension element in return for a higher pension to begin with. I can't see that benefitting anyone unless they think they will die within a decade

Although I don't have any numbers to play with, an active decade of holidaying after retirement while the joints still work and a higher income before state pension kicks in is something that should appeal to many.

jsinc

Some info on 2005-17 Rate of Inflation experienced by retired and non-retired households:
https://www.ons.gov.uk/economy/inflationandpriceindices/articles/cpihconsistentinflationrateestimatesforukhouseholdgroups20052017/2005to2017

Discussion of longer term (1977-2008):
https://www.ifs.org.uk/publications/4328

Option 3 seems sensible, for reasons others have outlined, but a personal/get advice choice really.

AnotherJoe

Simple_Soul wrote: »

£30k in BT shares.
I want to get rid of the BT shares, but I can't bear to sell them at the price they are now.

That is classic and very poor thinking. Presumably they were once worth a lot more. BUt tehre is no law of magnetic attraction that says they will eventually go back to where they were or anywhere near it. They might but they could equally well halve.

If you had £30k, would you buy BT shares with it? If you wouldn't, which i presume is teh case as you'd "like to sell them", then you should sell them.

One thing about the pension options
1. £15, 816 p.a. gross, + £47,448 TFLS
2. £13,583 p.a. gross + £90,554 TFLS.
3. £17,478 p.a. gross (no TFLS).

That changes once you include tax to (roughly)
1. £14, 800 p.a.
2. £13,000 p.a.
3. £16,000 p.a.

And after SP kicks in , again roughly

1. £14, 400 p.a.
2. £11,500 p.a.
3. £14,400 p.a.

That all looks to me like Option 1 is best.
As i said check my maths.

Oh,and sell those shares!

kidmugsy

AnotherJoe wrote: »

That is classic and very poor thinking.

Quite right. The shares can have no hurt feelings: sell 'em!

kidmugsy

Simple_Soul wrote: »

the alternative options are not as good value for money as the Standard Option (Pension, plus a TFLS of 3 x Pension). ... the majority of the replies on this thread seem to think that it is the best option for my circumstances.

I have added a correction to my comment #16. I inclined then to viewing the standard option as attractive. Other posters' arguments have since strengthened that view.

I also think there's something to be said for "an active decade of holidaying after retirement while the joints still work and a higher income before state pension kicks in is something that should appeal to many", as PeacefulWaters suggested.

Anyway, remember that if several options look about equally attractive then it doesn't much matter which you select. Spin a coin if needs be.

saintalban

I agree with the OP that maximum pension is the best option for him as he already has plenty of savings banked and extra index-linked income is probably more valuable therefore than yet more cash destined to lose value as inflation rises with Brexit. I am in a similar position with the same choices facing me shortly.

The standard deal of pension and tax free lump sum may be the best value for money, especially to those with plenty of pension income to live on already and/or wanting to pay off a mortgage/go on expensive holidays but for me the peace of mind of a good regular income index linked makes more sense despite the mediocre inverse commutation rate.

Simple_Soul

AnotherJoe wrote: »

One thing about the pension options
1. £15, 816 p.a. gross, + £47,448 TFLS
2. £13,583 p.a. gross + £90,554 TFLS.
3. £17,478 p.a. gross (no TFLS).

That changes once you include tax to (roughly)
1. £14, 800 p.a.
2. £13,000 p.a.
3. £16,000 p.a.

And after SP kicks in , again roughly

1. £14, 400 p.a.
2. £11,500 p.a.
3. £14,400 p.a.

That all looks to me like Option 1 is best.

After SP kicks in, I make it:

1. £21,589 p.a. net + £47,448 TFLS
2. £19, 803 p.a. net + £90,554 TFLS
3. £22,919 p.a. net (no TFLS)

Thank you for your comments. You are right, I would not buy any shares. I have had these shares for about 20 years. The price plummeted after the Spanish debacle and I was hoping it would recover after a couple of years. I will definitely consider what you said.

The Standard Option (£47k TFLS) is undoubtedly the best value for money from a purely number crunching perspective. And I cannot ignore that.

Simple_Soul

saintalban wrote: »

I agree with the OP that maximum pension is the best option for him as he already has plenty of savings banked and extra index-linked income is probably more valuable therefore than yet more cash destined to lose value as inflation rises with Brexit. I am in a similar position with the same choices facing me shortly.

The standard deal of pension and tax free lump sum may be the best value for money, especially to those with plenty of pension income to live on already and/or wanting to pay off a mortgage/go on expensive holidays but for me the peace of mind of a good regular income index linked makes more sense despite the mediocre inverse commutation rate.

Hi, thanks for your support, although actually I am all over the place with this; I change my mind hourly.
Are you with BT too?
I have to make a decision by mid April, and I will probably vacillate until the last minute.

I am fortunate in that whichever way I jump will not be a disaster. But it is important, and it will affect the rest of my life, so I want to choose well.

Everything you said is spot on, but the nearly 30:1 reverse commutation factor means that it will take 30 years to break-even (I.e. before the cumulative additional pension exceeds the lost TFLS). So, I would be aged 90 before I started to be in profit. That is a long time. I do not want to throw money away.

Tom99

Simple_Soul wrote: »

Everything you said is spot on, but the nearly 30:1 reverse commutation factor means that it will take 30 years to break-even (I.e. before the cumulative additional pension exceeds the lost TFLS). So, I would be aged 90 before I started to be in profit. That is a long time. I do not want to throw money away.

And it is tax free so that pushes out the 30 years even further.