What would you do?

skycatcher

I will take my DB pension at 60 (in 15 months).

There are a number of options provided by the pension. Some of these include sacrificing some amounts from index linking to have a higher starting sum - I am currently not considering these.

One option though is to take a lower annual pension for a larger TFLS. The rough figures are as follows :-

£33k/pa plus £100k TFLS

or

£28.5K/pa plus £190k TFLS

I'm married with independent grownup Kids!

I'd appreciate your thoughts.

Thanks for reading.

Sky

NoMore

Doesn’t matter what I or anybody else would do. Our circumstances are different to yours.

You need to ask yourself how much income you need in retirement and what plan you would have for the extra money in the Tfls if you took it.

Brynsam

What other people would do isn't relevant - we aren't in your situation with your attitude to risk, health history, life expectancy, debts (if any), tax rate, other savings....

Ask yourself what you'd do with the £90K. Can you find an investment that you are happy with, and which gives a better rate of return? Any capital expenditure (e.g. new windows) which would give you a more comfortable home/lower energy bills? Do you have any debts to pay off? Do you want to give your kids a lump sum to help them get on the housing ladder?

Marine_life

Looking purely at the maths that sacrificing £4.5k (5%) index-linked (relatively) risk-free for £90k.

Unless you really need the £90k (e.g. to pay off expensive debt) or have a reduced life expectancy I know what I would do.

Shedman

However there is also the reduced tax to take into account by taking the larger lump sum so the £4.5k gross reduction would be a £3.6k net after tax reduction for a basic rate taxpayer.

Ignoring any differences in indexation of the pension and return on the lump sum this equates to 25 years breakeven point so if you don't rate your chances of living to 85 years old then it could be a sensible option.

It also depends on other factors such as whether spouses pension stays same if you take a bigger lump sum or whether that gets reduced and whether that is important to you.

LHW99

You could consider taking the higher income, and paying £2880 net into a DC pension if you don't need it. That would get the additional £720 tax relief added. If your wife has spare income, or isn't earning you could put the rest into a DC pension for her.
Have you check your state pensions?

soulsaver

Have they given you a CETV? It could likely be over £1m..

robin61

I wouldn't discount the higher starting pension without due consideration. There will be 2 crossover points one when the lower starting pension catches up in value and another when the total amount paid in retirement will be more with the fully index linked option. The number of years to reach these points will depend on how high inflation is but you could be quite old by the time you start making a profit and of course by that time you should have your State pension also. So maybe this could be a good way to smooth out the income curve during retirement ?

Brynsam

soulsaver wrote: »

Have they given you a CETV? It could likely be over £1m..

If someone is dithering about whether or not to take a higher tax free lump sum, and turning to strangers for 'advice', the chances of their being able to 'look after' a substantial transfer value don't seem particularly high...

skycatcher

Thank you for the replies. I wasn't looking for advice or dithering really. I just thought it would be interesting to see what others might do with the options. Of course everyone is in a different "life" position and so would be influenced by such.

I had never considered taking the larger lump sum until a friend the same scheme mentioned it but then his circumstances are very different to my own but it did get me thinking.

While I have no "need" for the extra £90k (no debts etc) doing the sums gave a cutover age of 78. I hope I can make that!

Cheers.

LeadFarmer

One advantage of taking the higher lump sum is that it can be invested and will be there for your partner if you were to pass away in the immediate years following retirement.

If age 78 is the breaking even point between the two pensions then consider if you would greatly benefit from the higher pension in the years following age 78, or would you rather have the extra money sooner?

Personally, I would take the higher lump sum so that I have that money straight away to do with as I please - invest/holidays/help kids etc. By the time I'm 78 I might not be in need of the higher monthly pension.