Which option is best?

garmeg

aphill24 said:

Linton said:

Looking at things very crudely.......
Suppose you live to 90:
Option1
11.3 years at £19500=£220350
23 years at £10500=£241500
Lump sum=£130000
Total: £591850
Option 2
34.3 years at £16500=£565950
Lump sum=£110000
Total: £675950
So Option 2 looks a better deal and £110000 is still more than enough for cars and a few goood holidays.
BUT
Do you have any other income?  If not, can you live for the first 11.3 years on £16500/year?  Take a part time job perhaps? Normally one would use the lump sum to make up the shortfall from not having the SP.  But if you took all the £9K/year that would use almost all of your lump sum.

Thanks Linton.There is the state pension to take into account also.
Option 1 
11.3 yrs at £19,500 = £220,350
23 years at £10,400 (DB pension) + £9,100 (state pension) = £450,800
Lump sum £130,000
Total: £801,150
Option 2 
34.3 yrs at £16,500 = £565,950
23 yrs at £9,100 (state pension) = £209,300 (From age 67 to 90)
Lump sum £110,000
Total £885,250
So £84,100 more 

The state pension has been ignored in both options (same amount in both scenarios) so Linton's comparison is the same as yours.

£675,950 - £591,850 = £ 84,100

£885,250 - £801,150 = £84,100

AnotherJoe

I can't do the maths on it at the moment but I'd say whilst option 2 seems much better, just recheck the numbers taking tax into account.  because Linton's calculation doesn't factor that in.  I still think option 2 will win easily. 

garmeg

AnotherJoe said:

I can't do the maths on it at the moment but I'd say whilst option 2 seems much better, just recheck the numbers taking tax into account.  because Linton's calculation doesn't factor that in.  I still think option 2 will win easily. 

I dont think tax is much of an issue here because both options use up the tax free allowance and both are clearly in the basic rate tax bracket.

Same comment probably applies if a Scottish tax payer.

aphill24

AnotherJoe said:

I can't do the maths on it at the moment but I'd say whilst option 2 seems much better, just recheck the numbers taking tax into account.  because Linton's calculation doesn't factor that in.  I still think option 2 will win easily. 

Thanks, I've run the numbers and you are correct option 2 is worth £85,200 more after income tax is taken into consideration.
This is £48 per week and it's the option I'm going to take. Most of my work colleagues go for option 4 but clearly this is short term thinking and I can now see why the company tempts people with this option as it saves them a lot of money in the long term.

aphill24

aphill24 said:

AnotherJoe said:

I can't do the maths on it at the moment but I'd say whilst option 2 seems much better, just recheck the numbers taking tax into account.  because Linton's calculation doesn't factor that in.  I still think option 2 will win easily. 

Thanks, I've run the numbers and you are correct option 2 is worth £85,200 more after income tax is taken into consideration.
This is £48 per week and it's the option I'm going to take. Most of my work colleagues go for option 4 but clearly this is short term thinking and I can now see why the company tempts people with this option as it saves them a lot of money in the long term.

I forgot to add this is minus the £20,000 drop in tfls but still £65,000