Civil Service-lump sum or annual pension max? Lump sum investment options

gillmc22

Hi, I have 29 years in classic scheme and now in Alpha. I'm planning to retire at 60 with 43 years service. My minimum lump sum will be about £44k and £20k annual pension. I will also receive my post divorce police pension @60 which will give me about £35k lump sum and £14.5k annual pension. Both will be index linked.
I'm inclined to take my maximum CS lump sum which would be about £116k and £16.5k annual pension.
My question is should I go for max lump sum or max index linked pension-my thinking is that although I'll still have a smallish mortgage payment my income would be more than now if I take minimum lump sum and not much less than now if I take maximum? I have 2 adult sons BTW who still live at home but won't by the time I retire🤞.
Also any recommendations for safe investment options for my lump sum gratefully received😊👍🙏 thanks in advance

kidmugsy

The safest investment for the lump sum is not to take it and to choose a larger annual pension instead. The best reason for taking a lump sum would be to spend it (pay off the mortgage, buy a country cottage, refurbish the house, go and see the Pyramids ...) or to give you a decent emergency cash reserve if you don't have one already.

Kynthia

kidmugsy wrote: »

The safest investment for the lump sum is not to take it and to choose a larger annual pension instead. The best reason for taking a lump sum would be to spend it (pay off the mortgage, buy a country cottage, refurbish the house, go and see the Pyramids ...) or to give you a decent emergency cash reserve if you don't have one already.

Kidmugsy would you include having something to leave for the children in that list of reasons for taking the lump sum? I understand that should be lower down the list of priorities and ensuring your annual income for life is sufficient is key. However if someone only has DB pensions and their children are now grown, would potential inheritence be a consideration?

xylophone

Why not take the minimum lump sum in both cases, leaving the rest to give you a comfortable index linked pension in retirement?

Even when you no longer have relevant earnings, you will be able to pay £2880 per annum into a SIPP and receive £720 tax relief - you could do this each year up to age 75 with the intention of building an inheritance for your sons.

Depending on the interest rate you are paying on your mortgage, you might wish to consider an over payment or lump sum payment from the £79,000 minimum you expect from your pensions.

You could also consider investing up to £20,000 in a stocks and shares I



https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-isa?cmpgn=PS0617UKPABIS0001&gclid=EAIaIQobChMIx_

http://monevator.com/using-vanguard-lifestrategy-funds-life/

You might consider making a cash gift to each of your sons in the hope of a PET.

Deposit rates on savings are not high but you would wish to set aside some cash as your emergency fund.

https://www.thisismoney.co.uk/money/article-1583859/Best-savings-rates-General-savings-Internet-branch.html

Have you obtained a new state pension statement?

https://www.gov.uk/check-state-pension

MK62

So the choice is really £34500pa with £79000 in tax-free lump sums, or £31000pa with £151000 in tax-free lump sums.....so in effect it'd be £72000 for an extra £3500pa in index-linked pension (which after income tax would really be £2800pa).

To be honest it's a tough call......five years younger and I'd probably say go for the extra pension, but at 60, I think it's more finely balanced.

If you took the larger lump sum, you would, of course, have a larger issue to deal with, in terms of getting it invested/banked in a tax efficient manner, but then you'd also have that extra comfort feeling of having a sizeable pot available whenever you want it.

Is £31000pa at 60 enough income?

I have 2 adult sons BTW who still live at home but won't by the time I retire

Are you sure about that?....

Audaxer

gillmc22 wrote: »

I'm inclined to take my maximum CS lump sum which would be about £116k and £16.5k annual pension.

Are you sure these figures are correct as according to the CS Classic Scheme booklet the maximum lump sum is 3 times your annual pension, which based on an annual pension of £16.5k would make it £49.5k?

gillmc22

Thanks xylophone
Yes I've checked my state pension and I'll get the full amount when I'm 67 or 97 depending on the Govt moving the goalposts again!! so that would be an additional £8k eventually.

£31k index linked will be not much less than I earn now and I'll have fewer outgoings so should be a healthy retirement income.

I'm tempted by the larger lump sum as it will give me cash security, inheritance for my boys and to travel the world as well as a lump sum off the outstanding mortgage and some safe investment 🌍✈️

gillmc22

Thanks mk62

The financial security of having a significant amount now is the key for me and I'd have to live to 85 before I'd have made the wrong choice. Just don't want to make the wrong decision with such a large amount of money.
And yes, I'm ever hopeful my boys will have moved out by the time I retire as they'll be almost 30😂🙏

gillmc22

Hi audaxer

Yes I've double checked the Cs pensions calculator and it's my Alpha scheme pension that gives the greater flexibility on size of lump sum.

gillmc22

All of the above tbh 🤣

kidmugsy

Kynthia wrote: »

Kidmugsy would you include having something to leave for the children in that list of reasons for taking the lump sum?

The best present to leave your children is the sure knowledge that Mum and Dad are financially secure. So the pensioner should choose the balance of income and capital that does that best in his situation.

One strong reason for taking more lump sum would be health worries. Another would be lack of a spouse to use the widow's pension, and a third a thought-through plan for spending part of it.

Anyway, with a larger income it might be easy to buy some life insurance to provide the equivalent of a bequest.

Or make an annual gift - that has the advantage that if it proved too hard to afford, it could be reduced or stopped. That's far more flexible than handing over a pile of capital.

One other possibility would be if the pensioner, or his spouse or children, faced an attractive use-it-or-lose-it financial opportunity. Then a lump of capital might be very welcome.

In my case I took maximum lump sum and later several such opportunities unexpectedly fell into my lap. What luck! An economist might say that's an example of the "optionality" of cash - you preserve the option of doing different things as chances arise.