Draw private pension early or wait 2 years?

Jesska100

Hi all

New here so forgive me. Looking for some advice. My mum has the option of taking one of her private pensions early but she is not sure what is best.

a) Lump sum of £7000 and monthly payments of £200 (immediate)

b) Lump sum of £12400 and monthly payments of £150 (wait until Oct 2021)

What option is best please? Thanks

Dazed_and_C0nfused

Does she have a desperate need for an extra £5,400?

If she took the higher pension now then this would have already paid about an extra £1k (pre any tax due) by October 2021.

Jesska100

Dazed_and_C0nfused said:

Does she have a desperate need for an extra £5,400?

If she took the higher pension now then this would have already paid about an extra £1k (pre any tax due) by October 2021.

I don't think she has an urgent need for it but she said that having the money now would boost her income.

Audaxer

With Option A she will have received 21 monthly payments of £200 by October 2021 and added to the £7000 that would be £11,200 received by then. So only £1,200 short of the lump sum at Option B. The extra £50 per month from Option A should only take another 2 years to reach the total sums received under Option B, so Option A looks to me to be the best option.

Is it a Defined Benefit (final salary) pension?

Jesska100

Audaxer said:

With Option A she will have received 21 monthly payments of £200 by October 2021 and added to the £7000 that would be £11,200 received by then. So only £1,200 short of the lump sum at Option B. The extra £50 per month from Option A should only take another 2 years to reach the total sums received under Option B, so Option A looks to me to be the best option.

Is it a Defined Benefit (final salary) pension?

Thanks. Yes I believe it is I thought the same but knew you guys would know more!

xylophone

How old is your mother?
What is her tax position?
Has she obtained a state pension forecast?

Dox

What's best for her depends on her needs and circumstances - there really isn't a 'right' or 'wrong' answer. 

Are you sure your figures are correct? Normally taking a pension early reduces both the maximum tax free cash and the pension, but the figures you've given show that she gets a bigger lump sum, but a pension which is 25% smaller.

Jesska100

Ill clarify this and get back to you.

Stubod

I think you have mixed up your figures. Most pensions offer a no/min lump sum and a certain annual amount, or an increased/max  lump some but a lesser annual amount?