Pension Lump Sum....What do people do with it?

IAMIAM

Interesting points here. Just to clarify, what actually happens to civil service pensions (DB ones) if one dies lets say 2-3 years after drawing down the pension (whether lump sum/and or income). I notice none are able to transfer out, so in effect, a sudden illness or death would result in the whole pension just stopping etc. 

GunJack

IAMIAM said:

Interesting points here. Just to clarify, what actually happens to civil service pensions (DB ones) if one dies lets say 2-3 years after drawing down the pension (whether lump sum/and or income). I notice none are able to transfer out, so in effect, a sudden illness or death would result in the whole pension just stopping etc. 

No, the survivor's pension (usually half the pension in payment) kicks in for their lifetime, and possibly a lump sum of (5yrs normal pension - pension paid already) to the surviving spouse/civil partner. If no survivor, then yes it would stop (but possibly the potential lump sum as above may  be paid to the deceased's estate. It depends on the scheme rules - remember, there is no single public sector pension, there are many different ones, e.g. NHS, Civil Service, LGPS, Police, Firefighters, etc.

jimi_man

I can confirm in respect of the police one, that’s correct. No matter how much lump sum you’ve taken, the wife/husband gets 50% of the full pension. Unless they marry again, in which case it stops. 

crv1963

jimi_man said:

I can confirm in respect of the police one, that’s correct. No matter how much lump sum you’ve taken, the wife/husband gets 50% of the full pension. Unless they marry again, in which case it stops. 

The same is true of NHS, except the spouse can marry again and still get the survivors pension. The size of my lump sum and however much I reduce my own pension has no bearing on my wifes entitlement upon my death.

Durban

AlanP_2 said:

enthusiasticsaver said:

IAMIAM said:

Dox said:

The smart money is increasingly on not taking the maximum tax free cash unless there is an obvious use for it.

Its interesting this, a lot have said this to me too. But then 2/3 years later they regret it because they are paying huge tax on the income become the state pension kicks in on top of suddenly realising they would like to donate some money to family and/or then have an illness

I would agree with this.  If my DH had not taken the lump sum on his DB pension then he would fall into the higher tax bracket once his state pension kicks in and anything he takes  out of his DC pot would then be taxed at the higher rate. Having an investment and savings buffer means if needed we could help our children, fund a round the world holiday or buy a  new car with cash. Surely people look to avoid paying tax on their pension wherever possible?

Personally speaking I would rather be a HR taxpayer than a BR or non-taxpayer if the amouint of tax paid is representative of the assets owned / income or pension amount. >£50k per year sounds better than <£12.5k to me.

I agree making sensible decisions around when and what sources of funds to access to minimise tax paid ios sensible but that doesn't necessarily mean taking the largest lump sum possible in every case.

I'm in the LGPS and I think it's a 1:12 commutation factor, I won't have a mortgage to pay off and have access to other funds for any lump sum purchases or helping kids out.

Why would I sacrifice CPI linked income for life (the majority of which will be taxable once SP kicks in) for a lump sum that I have no need for? It won't take many years for the after-tax amount on the higher pension to overtake the lump sum so I would be "volunteering" to pay more tax but anticipate being better off as a result. 

Plus , us extremely lucky one's to be in the LGPS have the option of paying into AVC's that we can build up to use as a lump sum without sacrificing our income for life.

Alan P - do you also pay into the LGPS AVC's for that purpose? 

6022tivo

Buying Bitcoin and other modern currencies.

AlanP_2

Durban said:

Plus , us extremely lucky one's to be in the LGPS have the option of paying into AVC's that we can build up to use as a lump sum without sacrificing our income for life.

Alan P - do you also pay into the LGPS AVC's for that purpose? 

Yes.

Thrugelmir

arnoldy said:

For a typical pension 10 – 11 years of 5% inflation would wipe nearly a quarter off the real value of the pension (assuming on average its capped at 2.5%).

When was inflation last at 5%. Not on the horizon either. 

Durban

Thrugelmir said:

arnoldy said:

For a typical pension 10 – 11 years of 5% inflation would wipe nearly a quarter off the real value of the pension (assuming on average its capped at 2.5%).

When was inflation last at 5%. Not on the horizon either. 

I sincerely hope it isn't but I don't think that it is beyond the realms of possibility.

All the Quantitive easing and surely the government could be tempted to inflate the massive borrowing away?

Aristarcus

crv1963 said:

jimi_man said:

I can confirm in respect of the police one, that’s correct. No matter how much lump sum you’ve taken, the wife/husband gets 50% of the full pension. Unless they marry again, in which case it stops. 

The same is true of NHS, except the spouse can marry again and still get the survivors pension. The size of my lump sum and however much I reduce my own pension has no bearing on my wifes entitlement upon my death.

Its interesting that it is different dependant on the pension. I think local government (GMPF) survivors pension ends upon remarriage as well?