Pension/investment advice
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Basically, after tax, you'd be giving up £280pa of net index linked income to gain £4578 extra in lump sum.
Assuming you banked/invested the lump sum, and managed to inflation proof it, if you then withdrew £280pa (index linked), the lump sum would be gone around 16 years later, whereas the pension would still be in payment. So basically, if you think you will last more than 16 years, the extra pension is probably the better option......
Having said that, I wouldn't sweat too much over this as it wouldn't significantly affect your overall position either way.0 -
Trinity_Phil wrote: »Why is option 2 not considered by most of you to be a good option ??
I accept that I will have to pay £2,962 in tax upfront but will be getting £4,578 additional lump sum over option 3, which I can then invest with the remainder of my lump sum, whereas option 3 only gives me an extra £350 p.a. on my pension (which obviously will also then be subject to tax).
What are we missing ??
You are missing the fact that £350 p.a. is too high a price to pay for a measly £4,578. The idea of good value applies in finance just as much as it does in Aldi.
It's an especially barmy price to pay given that you are only 53 and the £350 would be inflation-protected.
If you want to check that just go to an annuity calculator and ask how much index-linked annuity you could buy for (say) £100,000. Let me guess: £2000 p.a. maybe. So what would be the cost of £350 p.a.? Roughly £17,500. So are they proposing to pay you £17,500 to forgo £350 p.a.? Not on your nelly; they are proposing to pay you just £4,578.
Now allow for tax by arguing that the £4,578 is really worth a taxed £5722. Fine: observe that £5722 divided by £17,500 equals 0.33. So they would pay you roughly one third of what the income is worth commercially. You'd be bonkers to take the extra lump sum unless you have objective reason to know that you'll die in the next decade. You don't.Free the dunston one next time too.0 -
Right...got it now..I told you I was new to all this !!!.
Thanks very much, guys...it's looking like option 3 then0 -
Trinity_Phil wrote: »I have now got my pensions estimate through and they are only listing 3 options...
1) Annual Pension of £25,819 with no lump sum
2) Annual Pension of £19,364 with pre-taxed lump sum payout of £136,010
3) Annual Pension of £19,714 and tax free lump sum of £131,432.
Can I not ask for a different option, as previously discussed, of approximately £65k lump sum, or are they likely to be my only options ??
I'm back again people....
I have just had my confirmed pension statement sent through and the figures have now changed :-
1) Annual Pension of £25,819 with no lump sum
2) Annual Pension of £19,364 with a lump sum AFTER tax of £141884 (tax £5480)
3) Annual Pension of £19,983 with a tax free lump sum of £133,225
Does this change anyone's thinking on whether I should now go for option 2 ???0 -
Option 2 means giving up £619 pa index linked for life for a £8659 lump sum so it's still the worst of the options given that you are 53.0
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So 8659 divided by 619 = 13.98 years for it to catch up at a flat rate (not taking into account index linking on the £619 p.a. or potential interest earned on the £8659 !) :think:0
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Trinity_Phil wrote: »So 8659 divided by 619 = 13.98 years for it to catch up at a flat rate (not taking into account index linking on the £619 p.a. or potential interest earned on the £8659 !) :think:
Or to put it another way, if you use the reasonable assumptions from Kidmugsy's previous post, a fair value for giving up that £619 p.a. would be more like £31,000. Effectively, they're offering you just over £14K for it, but you're giving a large chunk to the taxman. Why would you do that, unless you're desperate for it or you have good reason to think your days are numbered.0 -
Trinity_Phil wrote: »I'm back again people....
I have just had my confirmed pension statement sent through and the figures have now changed :-
1) Annual Pension of £25,819 with no lump sum
2) Annual Pension of £19,364 with a lump sum AFTER tax of £141884 (tax £5480)
3) Annual Pension of £19,983 with a tax free lump sum of £133,225
Does this change anyone's thinking on whether I should now go for option 2 ???0 -
Trinity_Phil wrote: »13.98 years for it to catch up at a flat rate (not taking into account index linking on the £619 p.a. ...)
Go to an annuity calculator and ask it for estimates of how much you'd get for £100k as (i) a level annuity or (ii) an index-linked annuity. Then calculate a ratio: (i) divided by (ii). Then multiply £619 by that ratio to find out the flat-rate equivalent of the index-linked £619.
Then repeat your break-even calculation but using the flat-rate equivalent. What's your payback period now? Something less than ten years presumably.Free the dunston one next time too.0 -
Thanks for the prompt replies again, guys...more valuable opinions which are very much appreciated :T
As Audaxer says above, the extra 8k lump sum can be put to good use and I have downgraded my budget for replacing my car to around 12k with my current one probably contributing to around 50% of that as a deposit ??
In 13.9 years I will have qualified for my state pension anyway, so there will obviously be an income boost there too.
We are currently in the process of engaging an independant financial advisor (who just happens to be a friend and former neighbour) to advise us professionally on this and I am currently waiting for him to get back to me on this, so will see what he recommends.0
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