Private Pension

lthoel2

My husband sadly passed away last month. He had a small private pension, it was only £137 per month. The pension company have been in touch and told me that half of it has been transferred to me and they have also told me that I can choose between the £68 per month fo the rest of my life. (I am 66 in Oct) or cash it in as a lump sum of £11,272. Anyone with any advice and any pitfalls to either choice. Thanks

Silvertabby

My heartfelt sympathies on your loss.

If you take lump sum, all of it would be classed as taxable income.  Depending on your current income, that £11,272 could be reduced by at least 20%.
It's not a very generous offer, either.  If you were to live by more than  12 years  or so then you could get more by taking the (index linked?) monthly pension.
It really depends on your current finances, and if you need an immediate lump sum.

As you are under State pension age, are you eligible to claim the (non means tested)  bereavement payments from DWP? The monthly payments will cease once you reach SPA (normally payable for 12 months) but there's a lump sum as well.

gm0

Condolences.

You don't mention whether this is fixed forever or indexed with inflation.  That matters a lot in assessing the long term "value". 
But it doesn't look generous as a lump sum.  £816 pa.  13.8x = £11,272. 

Live to 79 the £68 is better as pure cashflow before you do anything with it (either way).  If it indexes it's less than that to break even

You can compare with what happens if you were "buying this" benefit (from current annuity tables - single life, london postcode.  100k buys £4926 single life, level, unindexed age 65 - so pretty close. So to "buy" £816 pa you would pay ~£16,565.

In the end it comes down to personal circumstances - do you need the money as part of your pension to live on - or is it more useful as capital now for you or your family.   But it doesn't look great as a buy out.  I wouldn't.  If it was indexed I definitely wouldn't. 

lthoel2

Thanks for the replies. The monthly payment is fixed it will never go up . I should have said that he lump sum is £14,090 and after tax it would be £11,272
Would the lump sum make a difference to claiming Pension Credit?

Albermarle

As the monthly payment is not inflation linked , then this starts to make the lump sum less unattractive, especially as it is actually £14,090 .
If you have no other income at all , then you would actually only pay tax on anything over your personal allowance of £12,500.
So £14,090 minus £12,500 = £1,590 to pay 20% tax on = £318 tax to pay .
So your actual payout would be £13,772- IF you have no other taxable income . Remember the State Pension is taxable when you get it.
I am not saying take the lump sum by the way and I can not comment on your Pension credit question.