DB Pension - PCLS or not

shinytop

I think I know the answer based on pervious replies but I'll ask anyway. PCLS for my DB pension has a commutation factor of exactly 20. It would be a substantial sum that I don't need for anything in particular; in fact I'd probably end up having to worry about tax on saving/investing it. The only reason I would do it is if I thought I could could better the guaranteed pension I'd be giving up. I don't think I can so I'm inclined to stick with the full pension. Any thoughts?

Shedman

I've been mulling the same question (esp as taking the lump sum doesn't reduce widows pension in my scheme). My thinking is more along the lines of the fact that when I get my state pension it'll kick me into the 40% tax band so taking a PCLS would avoid that (plus leave more cash for the wife should I pop off early).

But then again there's the inflation proofing of the DB pension (well sort of as it's a mix of RPI and CPI increases) thats being given up and would need to be replicated through investing. I'm currently on the fence but probably leaning towards not taking one (or at least not the maximum). At the end of the day only you can decide based on your circumstances, tax situation, scheme rules etc.

Albermarle

Maybe it is a simple view but as it is tax free , then the commutation factor is effectively 24 if you are a basic rate taxpayer in retirement. This does not mean it should definitely be taken , only it should be taken into account in any calculation. For a 40% taxpayer in retirement this obviously means the commutation factor is higher still.

cloud_dog

shinytop wrote: »

I think I know the answer based on pervious replies but I'll ask anyway. PCLS for my DB pension has a commutation factor of exactly 20. It would be a substantial sum that I don't need for anything in particular; in fact I'd probably end up having to worry about tax on saving/investing it. The only reason I would do it is if I thought I could could better the guaranteed pension I'd be giving up. I don't think I can so I'm inclined to stick with the full pension. Any thoughts?

OP, I'm a number of years from there just yet but, my pension scheme is probably identical to yours, regarding partner pension and commutation factor.

I will probably take the full PCLS.

There are a number of factors behind this decision and they do not primarily relate to simply obtaining a big cash lump sum.

Whilst I am hopeful of enjoying many retired years there is a history of heart conditions in my family. Additionally, because of our life choices (we decided my wife would not go back to work after our child was born and subsequently she has only been working part-time) we did not manage to continue to make sufficient contributions in to my wife's pension (we are making every effort currently to catch up).

So, for me it is about shifting as much financial capability as possible towards my wife but, also to ensure we maximise our tax allowances.

The commutation factor (20) does make a significant dent in the initial pension amount but I have been planning our retirement finances based on the reduced initial pension, and the numbers are looking good.

jimi_man

Hi

I was faced with this decision a couple of years ago and despite being in a job where 99.9999% of people take the lump sum, I decided not to. My commutation factor was 21.6. My reasoning was that I didn't need the money, I didn't want to have the responsibility of finding something to do with it, and I didn't want the temptation of being able to fritter it away. I couldn't see the point in paying off my mortgage either, as I figured that I'd be swapping a low interest payment for a higher one.

It's also worth bearing in mind that whether the commutation factor is good or bad is dependent on your age. A commutation factor of 20 at age 65 I consider is ok, as with an average life expectancy of 86 say, then you are only giving up 21 years of that extra pension. In my case I was 51, so I was effectively giving up 35 years of extra pension for 21.6 x. I reckoned that was a pretty poor deal.

I've always though that it's an entirely personal decision. If someone comes along and says you need to commute/you shouldn't commute, without knowing everything about you and your lifestyle, then I'd say they can safely be ignored. There are so many factors that go into making the decision, that goes towards the right decision.

The right decision is not necessarily the one that makes you more money either, personal satisfaction is not always financially related.

shinytop

Thanks all, some useful different perspectives. HRT could be a factor for me too - with my DC pension I'm near the LTA and although the 20x is the same as the DB LTA conversion, I think I want to get as much of my DC pension out without paying HRT so less taxable income would be better. Yes I know, nice 'problems' to have and I'm not complaining.