Best lump sum / pension combination for me

alanwsg

Hi there,

I'm coming up to 60 and will soon be receiving my pension.
I have the option of around 84500 TFLS + 28150 pension or 162500 TFLS + 24400 pension (Or any choice in between).

The pensions will increase with inflation.

I've been retired and living on my savings for a few years already and know I can live on the lowest figure for the annual pension.

I'm leaning toward taking the max TFLS, just because it's a 'bird in the hand', just wondering if anyone has any strong arguments against doing that.

Also, what should I do with a 162500 lump sum suddenly appearing in my possession?

Thanks.

tacpot12

You don't need to do anything immediately as the money can sit in your bank account safely for upto six months. After that you need to move it to keep it protected by the Financial Services Compensation Scheme.

You should look to get some interest on the money, so spread it about a number of institutions, perhaps tying up some of the money for a longer period, e.g. in a fixed rate bond.

The strong argument against taking the max TFLS is that you don't know what living costs you are going to have in the future. You might be able to live on the pension amount now, but if your living expenses increase unexpectedly, you won't have this income. If you had it, it would also rise with inflation.

Linton

Since you dont mention a spouse I assume there isnt one.

By taking £78000 extra tax free lump sum you are losing £3750 pension. After tax that is equivalent to £3000. I would say that financially it is pretty marginal, with the decision being based on which is more useful to you in your particular circumstances.

If your future well-being depends on the extra income then it could be best to keep the absolute security of the pension. That is assuming the pension is fully index linked rather than capped.

If you have plenty of income anyway, especially after you start receiving State Pension, then it is reasonable to take the extra lump sum to be used for major expenditures, gifts, inheritance, charitable donations etc and extra living expenses until you reach State Pension Age. It would be worthwhile working out how and when you are going to use the money.

As to what to do with the large lump sum, here is one strategy which may or may not be right for you....

1) Keep a significant amount in easily accessible cash eg £25K
2) In addition if you have any major expenditure planned in the next 5 years keep the money required in cash also.
3) Any money beyond that is for the long term. Assuming you dont want to start up a business (eg BTL) you have 2 basic options, fixed long term cash deposits or some form of investing, perhaps in shares. Your main risk long term is inflation and the most likely mainstream way of beating inflation is through investing in shares via the use of funds. If you are investing in shares you should aim to max out your ISA allowance every year.

In the short term whilst you are sorting out your finances you could split the money over 2-3 bank accounts to ensure full FSCS protection or keep it in NS&I which is 100% backed by the government.

Given the size of your lump sum if you have no experience of investing it could be worthwhile talking to an IFA, but think through what you want the money for first.

Marcon

The bird in the hand may turn out to be a dead duck... If you don't know what to do with the cash, are you sure it's such a good idea to take it 'just so you've got it'?

Maybe now is the time to get some proper financial advice, based on a full understanding of all your circumstances, rather than thinking that guesswork from random strangers will magically produce the 'best' answer for you.

Happy retirement!

Albermarle

Also, what should I do with a 162500 lump sum suddenly appearing in my possession?

If you go to the 'savings and investments ' forum pages , you will see that someone asks what do with a lump sum , inheritance etc almost every day . If you read the answers to say a random 20 of the questions , you should be well informed !

alanwsg

Thanks for the advice, I shall do some pondering.

I'll probably bung the TFLS in my Marcus account while I sort myself out. I know a pension lump sum payment is covered by the FSCS for up to 6 months.

Do I need to do anything to gain that protection?
E.g. inform Marcus where the money came from or anything like that?