What to do with lump sum from db pensions.

alfmurph

I am 66 this month and planning to retire at end of year .
DB lgps will pay 16k and 30k lump sum. Plus 6k oap. OR 12K and 80k lump sum . I prefer the former.
My wife is 62 with a DB pension of 12k and a lump sum of 80k .No other choice except cetv and we do not fancy that .
We have 40 k in savings . 35k in 2 year isa and 5k in instant access isa .
Mortgage free with no debts we intend to live of these pensions .
If you add the 8ok plus 30k plus 40k we have 150k .
We would like to try and use this sparingly for holidays , xmas etc .
Never invested before and always saved in isa's .
Do not really want to take risk's and lose money .
Any advice please .

Dazed_and_confused

Do not really want to take risk's and lose money

Tricky to balance. You either take a risk by investing or stick it in the bank and know your capital is safe but you will be running the risk of losing money due to inflation.

You can probably get 2% on a 1 year fixed rate or 1.5% on instant access.

Your wife can earn a lot more interest than you before she will have to actually pay tax on it.

She can have interest of £6,500 and pay no tax on it (it will be "taxed" but at 0%).

Your wife might also want to consider applying for Marriage Allowance at some point. If her only pension income is £12k she would make herself liable to pay about £150 in tax by doing this but you would save £250 so as a couple you'd be £100 better off.

She needs to think about her income for the whole year before doing anything about Marriage Allowance. If she has been earning at more than £12k it might not be worth doing until the next tax year.

k6chris

Put it in a savings account whilst you consider your options. If you do not need the money / risk that comes with investment in shares, leave it there and sleep well at night.

Audaxer

alfmurph wrote: »

Do not really want to take risk's and lose money .
Any advice please .

You still risk losing some money due to inflation if you just leave it all in savings. I would suggest reading up on this forum and sites like Monevator about investing. A good way to get started is through low cost passive, globally diversified multi asset funds. The following are good examples that are discussed a lot on here and many people hold - Vanguard LifeStrategy, HSBC Global Strategy and L&G Multi Index funds. You can select the version that suits your risk tolerance - a higher percentage of equity will mean more volatility, but likely to produce higher returns in the long run. If there is an equity crash, as happens from time to time, your fund fall could fall quite a lot, but should recover within a couple of years at the most.

Don't rush into anything - just take your time and do some research.

LHW99

You could always put some in premium bonds while thinking. You'd probably get a few small prizes, and who knows - someone has to win big!

alfmurph

Had a look at this on monevator . Vanguard seems too good to be true . Everyone is raving about it .
I noticed on vanguard and one or two other stocks and shares the last 5 years all have good profits but mostly because they had one really good year in 5 . And not all the same year .
How can one fund have a 25% profit in the second year but another has it's best year in the third year and another in it's 4th year .

Audaxer

alfmurph wrote: »

Had a look at this on monevator . Vanguard seems too good to be true . Everyone is raving about it .
I noticed on vanguard and one or two other stocks and shares the last 5 years all have good profits but mostly because they had one really good year in 5 . And not all the same year .
How can one fund have a 25% profit in the second year but another has it's best year in the third year and another in it's 4th year .

Are you referring to the Vanguard LifeStrategy funds, and if so which funds are you comparing them to?

alfmurph

virgin - only because my isa is with them .
and
Halifax - only because my bank account is with them .
I would not invest with either of these 2 just found it interesting that their best years were different years .

LJK123

The lump sum offered by the LGPS (for service after April 2008) is based on a commutation factor of 12. This means for every £1 of annual pension you give up you get £12 as a one off lump sum. Any lump sum relating to service built up prior to 2008 is calculated differently.

This factor is very low and so it is likely that you would be better off taking the higher pension instead. This is, of course, dependent on what you plan to do with the lump sum and your health.

You only have to live around 11.5 years after retiring to be worse off financially unless the money is invested and your return is higher than the rate of inflation (currently CPI) each year that is applied to the pension.

Merely putting the lump sum into a low rate savings account receiving around 1-2% interest wouldn't be beneficial.

That being said, if you get a good return on your investment you may be quids in. Additionally, some enjoy the added comfort of having cash in the bank for a rainy day. If you could save the additional pension every month instead of taking it as lump sum, would this not cover Christmas and holidays and still have some left over?

Whilst it is tempting... unless you have a very good investment strategy I'd take the additional pension!

(For info: I've worked as an Administrator of public sector pensions incl. LGPS for 11 years)

alfmurph

DB lgps will pay 16k and 30k lump sum. Plus 6k oap. OR 12K and 80k lump sum . I prefer the former.
These are the only choices on the online calculator council has installed .
I can vary this between pension/lump sum but these 2 choices are the minimum and maximum .
Are you saying I could give up the lump sum completely for a bigger pension .
I did ask about this to pension section and was told no . I have to take at the least the 30k lump sum .


My wife on the other hand has a db private company pension.
She can take 12k pension and 80k lump sum or 15k and lose lump sum completely .
Confusing .

[Deleted User]

alfmurph wrote: »

virgin - only because my isa is with them .
and
Halifax - only because my bank account is with them .
I would not invest with either of these 2 just found it interesting that their best years were different years .

Are you comparing Vanguard LifeStrategy funds to the performance of HBOS and Virgin Group shares? If so, it’s apples and oranges. Or are you comparing to whatever (undefined) combinations of mutual funds you are holding within these accounts?

In general, looking at performance over a period of under 10 years is pointless and comparisons should be to similar funds or benchmarks.

And popularity doesn’t make a fund bad. Doesn’t necessarily make it good either, but you need to read a few books and understand concepts.