How would you take these pensions?

tony4147

My wife is 57 y/o and planning to retire at 60.
She is in the teacher’s pension scheme and has an old DB scheme from when she worked for HBOS many years ago.
We have the projections for both her pensions and would be interested in peoples thoughts on what way she should go with her pensions as she can take an increased TFLS from the TPS for a reduced yearly payout, and with the HBOS she has the choice of whether or not to take the TFLS.
Her SP age is 67 and she will be 3 years short of the full SP.
Figures are –
TPS £13,400 PA and £40k TFLS Or £10,750 PA and £71,600 TFLS
HBOS £5,500 PA and £0 TFLS Or £4100 PA and £27,200 TFLS
So, if she takes the maximum TFLS she can take £98,800 TFLS and have a pension of £14,850
If she goes for the minimum TFLS she would get £40,000 TFLS and had a pension of £18,900
I’m 56 and plan to have a pot of approx. £400K at 60 and will have a full SP at 67
We have a house currently worth approx. £650k and will probably downsize before 70 which would release probably £150-200k.

Linton

One way of looking at the problem is if you take the TFLS could you get an equivalent guaranteed income to the amount lost.


I assume both schemes are offering full CPI or RPI linkage,


HBOS:Lose £1400/year and gain £27200 TFLS. 1400/27200=5%. After tax:4%. An equivalent annuity would be around 3%. So the £1400/year is more valuable than £27200 lump sum.
TPS: Lose £2650/year and gain £31600 TFLS. £2650/£31600=8.3%, After tax 6.6%. So again the higher pension is worth more than the extra lump sum.


So all other things being equal; from a pure financial point of view she should take the minimum TFLS. However other factors may tilt the balance towards taking the TFLS. For example:
- reduced life expectancy
- clearing expensive debts
- paying higher rate tax when in retirement
- the reduced pension provides more than enough income and there is a good use for a lump sum. eg a 6 month world cruise, up-sizing your home.

tony4147

Yep, see what you mean, thought it might be worth taking the HBOS TFLS as she would have to live over 20 years before she would be worse off whereas the increased TFLS on the TPS she has to live 12 years before worse off, therefore think take the HBOS TFLS and not take the increased TFLS option with the TPS.

tacpot12

Even though the HBOS TFLS is not such good value, I would suggest your wife considers the certainty of taking the HBOS pension without a TFLS. £18,900 is a good pension income (and your wife will only pay 7.5% tax on this due to her personal allowance). If the £40,000 TFLS is sufficient for her/your needs, why give up the certainty of future pension income?

Remember that if her pension pays you as her survivor if she dies early, you will receive a higher survivors pension if she has taken the minimum TFLS. So the future benefit isn't lost completely if she were to die before 12/20 years.

Linton

tony4147 wrote: »

Yep, see what you mean, thought it might be worth taking the HBOS TFLS as she would have to live over 20 years before she would be worse off whereas the increased TFLS on the TPS she has to live 12 years before worse off, therefore think take the HBOS TFLS and not take the increased TFLS option with the TPS.

Average life expectancy for a 60 year old woman in average health is about 90 so losing out after 20 years is not optimal. However it is a relatively close call. If there was no requirement for the missing income recovery to be guaranteed, eg one can accept not drawing down when prices are low taking the TFLS could be more attractive.

atush

tony4147 wrote: »

Yep, see what you mean, thought it might be worth taking the HBOS TFLS as she would have to live over 20 years before she would be worse off whereas the increased TFLS on the TPS she has to live 12 years before worse off, therefore think take the HBOS TFLS and not take the increased TFLS option with the TPS.

It would be sooner as you havent takeen itno acct the annual uplift

If you have other savings, and 40K is sufficiet and sshe is of normal health i'd go max pension

kidmugsy

tony4147 wrote: »

My wife is 57 y/o and planning to retire at 60. She is in the teacher’s pension scheme and has an old DB scheme from when she worked for HBOS many years ago.
We have the projections for both her pensions and would be interested in peoples thoughts on what way she should go with her pensions as she can take an increased TFLS from the TPS for a reduced yearly payout, and with the HBOS she has the choice of whether or not to take the TFLS.

I’m 56 and plan to have a pot of approx. £400K at 60 and will have a full SP at 67. We have a house currently worth approx. £650k and will probably downsize before 70 which would release probably £150-200k.

In short, with her £40k TFLS, your £100k TFLS, and the house's £150k lump sum, you'll have tax-free capital coming out of your ears. But because your own pension is DC, as a couple you won't be as well provided with guaranteed inflation-protected income. So I suggest she go for max pensions and min TFLS.

By the way she should check her expected State Pension: as a DB scheme member she'll probably have been "contracted out" for many years. So there may be a case for paying some more NICs to ensure she gets max state pension.

MK62

tony4147 wrote: »

Yep, see what you mean, thought it might be worth taking the HBOS TFLS as she would have to live over 20 years before she would be worse off whereas the increased TFLS on the TPS she has to live 12 years before worse off, therefore think take the HBOS TFLS and not take the increased TFLS option with the TPS.

The TPS offer is poor value (the commutation rate is only around 12:1), so as you have indicated yourself, it's really not worth it unless she is desperate for the cash amount.

The HBOS offer on the other hand is a much closer call (commutation rate almost 20:1), but I would also urge you to consider her net (ie post tax) position rather than just the gross figures - they are, after all, what really counts in the end.
While in gross terms she would be giving up £1400pa (with some form of inflation protection), she would never actually see £1400pa......after income tax, it would be £1120 (all her personal allowance would be used up by the TPS pension).
As the HBOS TFLS is tax free, it's really a choice between a net £1120pa for life vs the one-off tax free lump sum of £27200 - so a little over 24:1.

That puts it pretty much into the 50/50 ballpark imho.......that said though, it also depends on what she plans to do with the money too......if the £27200 TFLS would simply sit in a savings account, she'd probably be better off (certainly at current and forseeable interest and inflation rates) taking the extra annual pension - it's guaranteed and risk free.
Alternatively she could decide to spend it.....or invest it!
On the former, good luck and enjoy it.....on the latter, there is simply no way to know beforehand if you would be better off vs taking the extra annual pension.....that's the risk/reward with investing.......

In the grand scheme though, it's not going to significantly affect you, as a couple, either way tbh.....£27200, while a nice sum to have in the bank, is less than 4% of your total assets (before any downsizing), so I wouldn't sweat over it too much......certainly not the same as if it was eg. 50% or more.

GSP

First I would say it seems you are both in a good position.
Know this will horrify some, but while you are at this stage looking at options, have you considered transferring out the HBOS pension? I know the bank pensions are/were very generous so first I would try to obtain a figure. An e.g. and this is no lie. Heard of someone working for a bank in the 80's/90's for just 8 years. Pension calculation recently was either £2k p.a., or transferring out for £150k. What do you think they did?
I say this as well as there other things to consider. Have you got kids and want to leave them money as the db pensions disappears with you two.
The teachers pension is a good healthy "income" to have regularly, and these other drawdown pensions can give you more flexibility in what you do.
Waiting to be shot down now!

arnoldy

In a way you are fortunate having two different schemes, enabling you to you take them very differently.
GSP is spot on. You must get a CETV for HBOS – it might be 35 times + or over 150k. That could go straight to a SIPP.
If you commuted the max on the TPS and invested it in an ISA plus using the 150k SIPP you could have a tax free income of circa 16k – and the capital not worked too hard so should even grow. That can then be inherited very tax efficiently (for whats in the SIPP).
I also prepare to be shot down and please bear in mind I am no expert!

tony4147

Thanks for everyone’s input, we never even considered getting a CETV for the HBOS pension but will now ask for a figure