Stick or Twist

DeeShoot

My first post so please be gentle!

My husband is soon to receive his deferred DB pension from BT (scheme . When he left nearly 20 years ago there was only 1 option i.e. x/80 plus 3x lump sum. He has recently run off a quote from the portal and there are now 4 options (well more if you consider you can opt for any sized lump sum). I know that this is a nice problem to have but it is causing him a lot of head scratching to know what is best “value” for money. The figures are :-

Opt Annl Pen Annl incr Annl Non Incr Lump Sum Widows LTA%
pen pen
1 33,760 33,760 101,279 16,880 73.59
2 29,253 29,253 195,019 14,626 73.94
3 39,877 14,644 25,233 101,279 19.938 85.19
4 33,855 8,652 25,233 225,901 16,943 85.64

The pension is increased by CPI. I will get a DB pension of about £5K in 5 years. We are both on target to get full SP.

We have S&S ISAs worth about £100k and premium bonds of £25k and shares of £25k. No mortgage and kids left home. Our monthly outgoings would be roughly met by option 2.

Your thoughts would be most welcome! Thanks for reading.

ps I apologise for the formatting but I just cant seem to make it right!

LHW99

Have you checked how you would be financially if he passed first? Does giving up lump sum for pension (or vice versa) affect how near he is to the LTA (ie does he have other pension(s) which could take him over it)?

DeeShoot

He doesn't have any other pensions. I'm still working and will do until I draw my pension so I think with his 50% pension for spouse I'd be OK.

jennyjj

The options are nominally all of equal value, on average, to a person of average longevity
His life expectancy is probably the first deciding factor: I.e if his health is poor or his predecessors tended to die early, then he should tend to take a higher lump sum. Conversely, if his parents lived to 100 and he never smoked or drank, then it's better value to take a lower lump sum.
If you had a pressing need for a lump sum, then go for that, but it sounds like you don't
Income tax is the next consideration, especially if there is any chance he'll ever be a higher rate payer.

I'd strongly advocate having as much index linking as possible.

Personally I was happy with the default option.

tigerspill

jennyjj wrote: »

The options are nominally all of equal value, on average, to a person of average longevity
His life expectancy is probably the first deciding factor: I.e if his health is poor or his predecessors tended to die early, then he should tend to take a higher lump sum. Conversely, if his parents lived to 100 and he never smoked or drank, then it's better value to take a lower lump sum.
If you had a pressing need for a lump sum, then go for that, but it sounds like you don't
Income tax is the next consideration, especially if there is any chance he'll ever be a higher rate payer.

I'd strongly advocate having as much index linking as possible.

Personally I was happy with the default option.

I am section C and am planning to also take the default in a couple of years. The cynic in me says the options were introduced not for the benefit of the members of the person scheme.

DeeShoot

He is in good health. I think one of the things making him question the default option is that a lot of his previous colleagues in similar financial/health situations have opted for max lump sums and a number going for the option 4 with the least indexing linking....though I wonder if they have been influenced unduly by the wealth at work crew?

jennyjj

DeeShoot wrote: »

He is in good health. I think one of the things making him question the default option is that a lot of his previous colleagues in similar financial/health situations have opted for max lump sums and a number going for the option 4 with the least indexing linking....though I wonder if they have been influenced unduly by the wealth at work crew?

There are a lot of misguided folks seduced by the higher lump sums. Electing to take only partial index linking is, IMHO, VERY unwise.

Option one every time, for me. No contest!

The Wealth at Work crew have a vested interest in getting their mitts on bigger lump sums to 'manage'

Madeinireland

Hi Deeshoot,

I am in a similar position and aiming to take it this year. I have personally ruled out options 3 and 4 on your list. As others have said BT are not providing those options for your benefit really - it wants to limit the long term hit on the scheme. If you are expecting to live a while and are in good health I wouldn’t take those.

With regards to options 1 and 2 - I will be taking option 2 but in my situation I have a large AVC that sits alongside the pension which means I can take the max lump sum without any reduction in the basic pension. Yours does look like it has been reduced to provide the bigger lump sum. As someone has said if you need the money for something between now and the state pension then perhaps option 2 but in your position I would take option 1 as it does look like you don’t seem to need to increased lump sum.

Regards...

DeeShoot

Thanks for your thoughts everyone. I think this has helped him rule out options 3 & 4. He may decide to go with something between 1 & 2 i.e. not the max lump sum but somewhere in between!

Cheers!