lump sum or pension

strawberryberry

I have two small final salary pensions that have reached maturity ( as have I now reaching 60 ).

First Pension -
Annual Pension £2,826.95
Automatic Tax Free Lump Sum£8,480.85
or

Optional lump sum
Max optional lump sum £6,663.42
Reduced annual pension if optional lump sum is taken £2,271.67.
I am not sure if this extra optional sum would be taxed ?
Pension goes up each year by CPI (is this the same as cost of living ?) .

Is it best to take option 1 or 2 & how do you calculate this ?

Pension 2
£2752 a year
or
£2064 a year
Tax free lump sum £13762.
Same here option 1 or two.
No point in leaving them in even though Ive got another 6 years of work - starting new job with new pension next week and these cant be transferred in , getting paid minimum wage for that so not a lot of spare cash ( should have retired this week being female under the old system and be on my old age pension ! ) .
Paid off mortgage and loans so ok there.
Just really want to work out what will be the best value for money - Any help much appreciated

strawberryberry

Ive worked out the new job after 6 years ( if I last that long) will pay £2600 per annum.
So in todays money that would be £6500 roughly a year from 3 pensions if I take the lump sums .

Tom99

The factor in Pension 1 is x12
The factor in Pension 2 is x20
To buy back the indexed linked pension you are giving up to take an increased lump sum would probably be at least a factor of x35, maybe more.
So taking the additional lump sum is either very poor value (pension 1) or poor value (pension 2).
If you feel you must take some extra lump sum take it from Pension 2.
Yes CPI is cost of living.

Audaxer

I don't really understand the figures in your first pension. Do you mean that if you take the reduced pension of £2,271.67 you get both these lump sums amount to £15,144? Does it give a figure for full pension with no lump sum?

For the second pension you are getting £20 of lump sum for every £1 of pension you give up, which is quite a decent lump sum as it would take about 20 years to break even if using it for additional pension. However unless you need the lump sum, it may be more worthwhile taking the larger pension as you could have a 30 year retirement.

Triumph13

The key question is how much do you need to live on in retirement? If you take the max pension on the two old pensions, plus £2,600 from the new job plus full SP then you'd end up with £16k a year post tax. If you take max lump sums (I'm assuming that includes from the new job from your figure of £6,500 rather than £2,271 + £2064 + £2,600 = £6,935) then you end up with £15k a year post tax.
Only you can answer which would be more useful to you - an extra £1k a year for life or £20k odd of cash.

xylophone

Can you say whether either of these pensions has a pre/post 88 GMP?

Are the pensions from public sector schemes?

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

I am not sure if this extra optional sum would be taxed ?

No - the lump sums are tax free pension commencement lump sums.

strawberryberry

[ The factor in Pension 1 is x12
The factor in Pension 2 is x20

The first pension is the teacher pension ( very low as I did supply for years and this was not counted in pension terms). They did say to me for each £1 of pension that is worth £12 lump sum or the other way round but that must be the factor you mention. I thought teacher pensions were supposed to be good but I read the higher the factor the better.
Does this mean 12 years to break even if I take the extra optional lump lump sum
2826 -2271 =555 ( less per year) lump sum 6663 / 555 = 12

strawberryberry

Audaxer wrote: »

I don't really understand the figures in your first pension. Do you mean that if you take the reduced pension of £2,271.67 you get both these lump sums amount to £15,144?

Yes

Does it give a figure for full pension with no lump sum?
No you have to have a lump sum - the only option is big or small.

For the second pension you are getting £20 of lump sum for every £1 of pension you give up, which is quite a decent lump sum as it would take about 20 years to break even if using it for additional pension. However unless you need the lump sum, it may be more worthwhile taking the larger pension as you could have a 30 year retirement.

Yes I just worked it out to be 20 years to break even.

strawberryberry

What is confusing me is the factor - I thought the higher the better.
Pension 1 Teachers Pension
If pension 1 has a factor of 12 - but 12 years to break even

Pension 2 HBOS ( bank of Scotland )
Pension 2 has a factor of 20 but 20 years to break even
How does this work ?

strawberryberry

xylophone wrote: »

Can you say whether either of these pensions has a pre/post 88 GMP?

I am not sure what this is but on pension 2 in a break down some is before 1988 and some before 1997.Pension 2 is HBOS ( Bank of Scotland)

Are the pensions from public sector schemes?
Pension 1 is Teachers pension
Pension 3 ( Job to be started ) is Civil Service

Have you obtained a state pension forecast?

State forecast is max for single person Ive worked since I was 15 so NI hit the target.

https://www.gov.uk/check-state-pension

Tom99

strawberryberry wrote: »

What is confusing me is the factor - I thought the higher the better.
Pension 1 Teachers Pension
If pension 1 has a factor of 12 - but 12 years to break even

Pension 2 HBOS ( bank of Scotland )
Pension 2 has a factor of 20 but 20 years to break even
How does this work ?

It's only the higher the better when you are giving up an annual pension in return for a lump sum.
i.e. giving up £1,000pa in return for £20,000 is better than giving up £1,000pa in return for £12,000.