Mums been offered a one of settlement instead of monthly pension.

COOKY516

Hi all, 
looking for some advice if possible. 

My mum (78) has had a letter from Barnett Waddingham who hold one of my late dads pension. My mum carried on receiving as entitled to after his death. They have sent her a letter telling her she can receive a one of payment instead of the monthly figure. She has worked it out against what she receives and against the years. She pretty realistic person and realised that she’d be better off taking the lump sum as she probably won’t see the resettlement figure taking monthly payments. 

She asked me to look into what tax she’d pay in the lump sum.  I believe it’ll be first  25% Tax free and then normal tax against the rest. She doesn’t earn more than 12500 a year with her state pension and others. 

Advice appreciated 

garmeg

The widow's pension is already in payment and Barnett Waddingham are offering to commute this pension (presumably because it is small-ish?).

There will be no 25% tax free cash here. That would have been an option for your late father only when he started taking his pension.

A rough idea of the amounts involved may garner more assistance.

COOKY516

She receives £111 a month currently, they’ve offered a one off payment of £18000. This seems a lot me but I don’t know what’s in the pot, I’d there a way of finding out?
im always a little suspicious of these offers, they obviously aren’t going to do it at a loss!

daveyjp

What will she do with the £18k?

JoeCrystal

And also, is that £111 a month index-linked?  If so, which one and it may be less generous than it first appears.

Joey_Soap

COOKY516 said:

She receives £111 a month currently, they’ve offered a one off payment of £18000. This seems a lot me but I don’t know what’s in the pot, I’d there a way of finding out?
im always a little suspicious of these offers, they obviously aren’t going to do it at a loss!

That's 13.5 years worth of monthly payments. If she lives beyond 91, she's losing out. Too close to call, I'd refuse the offer.

Albermarle

Presumably she is receiving a state pension but has no other income?
If so you can  add the annual amount for the state pension to £18000, and then subtract her personal tax allowance of £12,500.
She will then pay 20% of this remainder in tax, (probably about £3K ?)
This swings it more in favour of not taking the £18K 

molerat

There is no "pot" to investigate, it is a "promise to pay" for the rest of her life. Also the lump sum could deny her access to some benefits she may be receiving.  It does look like a refuse IMO.

xylophone

Presumably she is receiving a state pension but has no other income?

It appears that she does have other income on top of the state pension

My mum (78) has had a letter from Barnett Waddingham who hold one of my late dads pension. 
She doesn’t earn more than 12500 a year with her state pension and others. 

garmeg

It's a no from me - keep taking the pension.
Assuming there are no life limiting issues.

Dox

COOKY516 said:

She receives £111 a month currently, they’ve offered a one off payment of £18000. This seems a lot me but I don’t know what’s in the pot, I’d there a way of finding out?
im always a little suspicious of these offers, they obviously aren’t going to do it at a loss!

Sounds about right. It will have been a calculation from the scheme actuary, based on a 'best estimate' of how long someone of her age is likely to live/predicted rates of inflation. If she lives longer than expected, or inflation is higher, then the scheme will indeed suffer what you describe as 'a loss'. The main reason for making this sort of offer is to cut out the costs of administering such a small pension.

Unless your mum has somewhere to invest the cash which will provide a return at least as good as that paid by the scheme, she might like to think again.