1995 NHS pension-big or small lump sum

AnotherJoe

Amateurretiree wrote: »

I was in almost the exact same position two and a half years ago at age 55. I ended up taking the maximum lump sum, paid the mortgage off, gave son money for a house deposit, went to New York twice as well as our annual Florida holiday. Our monthly outgoings are exactly half of my NHS pension, DH has a substantial SIPP, I get SP in 9 years DH in 4 .
We have 5 years of cash in the bank in case the market crashes, this is a great comfort to me.

So I think what I’m saying is, we didn’t need the guaranteed larger pension later on and we want to make the most of the next few years while we are hopefully fit enough to.

We have been careful with money all of our lives, and still are, but our thoughts are nobody knows how long they have, we feel we have enough for both of us to be taken care of if something happens to the other or not, so I do not regret my decision to take the bigger lump sum.
Of course that’s just our view, others may disagree.

^^^^^^^^^^ All of that.

kangoora

AnotherJoe wrote: »

So on the face of it lower lump sum is better if you live to age 87 or a bit lower, however will you need the extra money when in your 80's? Anything you want to spend the bigger lump sum on? A few great holidays whilst in good health?A new car? House improvements? If so take the bigger lump sum, if not take the lower lump sum.

Are you sure about those sums? I make it £541k on the first option and £583k on the second option? Making the second, smaller lump with higher pension sum advantageous in pure money terms (plus the larger base pension will attract higher rises when CPI/RPI increases are calculated).

90 k lump sum and 13k pension
So that gives you £90k plus £13k a year for 7 years plus maybe £18k a year after age 67 adding in SP and allowing for £1k of tax. Total age 87 £483k (age 87 = live 20 years after getting SP).

51k lump sum and 17k pension
So that gives you £51k plus £16k a year for 7 years plus maybe £21k a year after age 67 adding in SP and allowing for £2k of tax. Total age 87 £441k.

crv1963

I think a lot depends on the need for "cash in the bank" versus income. If you have a use for the larger lump sum and with the reduced pension can still have a decent standard of living then that will be a major influence.

The 12:1 rate may be poor but is still an option or choice many would like to have.

It is a choice I am still thinking about. Do we take the larger lump sum, clear mortgage and have money to do things we would like = such as holidays, helping children etc or do we stay income "relatively" well off and see a larger amount paid in tax once we hit SPA?

Another factor is health/ life expectancy, larger lump sum and reduced pension could leave any surviving spouse relatively better off as the increased lump sum makes no difference to the survivors pension- that will be 50% of the smaller lump sum/ larger pension rate regardless. The original pensioner by taking a smaller pension/ bigger lump sum does not reduce their survivors pension.

GunJack

Plus, whichever way you go, don't forget to buy added years NI to max out state pension

AnotherJoe

kangoora wrote: »

Are you sure about those sums? I make it £541k on the first option and £583k on the second option? Making the second, smaller lump with higher pension sum advantageous in pure money terms (plus the larger base pension will attract higher rises when CPI/RPI increases are calculated).

90 k lump sum and 13k pension
So that gives you £90k plus £13k a year for 7 years plus maybe £18k a year after age 67 adding in SP and allowing for £1k of tax. Total age 87 £483k (age 87 = live 20 years after getting SP).

51k lump sum and 17k pension
So that gives you £51k plus £16k a year for 7 years plus maybe £21k a year after age 67 adding in SP and allowing for £2k of tax. Total age 87 £441k.

No I'm not at all sure since the mini spreadsheet i created i didnt save. Shouldn't be too difficult for OP to run it themselves and do the sums.
Dont forget to factor tax into account when doing the sums, eg the £17k a year becomes £16k for the first 7 years and then perhaps £15k a year after SP comes in because more of the £17k is taxable.