Is it mandatory to take the 25% lump sum from the pension pot when you retire?

StephenM_2

zagfles said:
It would also cost schemes like the LGPS, and so the taxpayer ultimately, if people weren't given the opportunity to voluntarily rip themselves off by taking a 1:12 commutation rate. 

I'm an active member of a private sector FS scheme intending to retire in about 4.5 years.
From my recent annual pension statement I've calculated that the commutation rate has improved from 1:16.4 to 1:18.2 over the last year. Obviously a lot can happen in 4.5 years, but at the moment what commutation rate would be regarded as acceptable.

bigadaj

StephenM_2 said:

zagfles said:
It would also cost schemes like the LGPS, and so the taxpayer ultimately, if people weren't given the opportunity to voluntarily rip themselves off by taking a 1:12 commutation rate. 

I'm an active member of a private sector FS scheme intending to retire in about 4.5 years.
From my recent annual pension statement I've calculated that the commutation rate has improved from 1:16.4 to 1:18.2 over the last year. Obviously a lot can happen in 4.5 years, but at the moment what commutation rate would be regarded as acceptable.

It'll vary on personal circumstances and situations. An easy and quick review would be to flip the commutation rate which gives you an effective 'interest' or return rate. So the recent change has reduced the effective rate from around 6% to a bit over 5%, you won't be getting anywhere near that in any guaranteed investments at the moment. People have quoted values of 30-40 recently, with some at more than that, and given current interest rates and economic outlook you would be looking at least 40 I would say to be worth considering.

Malthusian

With investments, guaranteed or otherwise, you don't lose all the capital on death. And not everyone has any need for their investment to be guaranteed. And tax free cash is, er, tax free, while taking it as income makes it taxable.

That doesn't mean that tax free cash is automatically better, but as you say it comes down to personal circumstances.

Silvertabby

Malthusian said:

With investments, guaranteed or otherwise, you don't lose all the capital on death. And not everyone has any need for their investment to be guaranteed. And tax free cash is, er, tax free, while taking it as income makes it taxable.

That doesn't mean that tax free cash is automatically better, but as you say it comes down to personal circumstances.

Exactly.  I didn't commute my LGPS pension because of the poor commutation rate - but it was a no brainer for Mr S and I to commute our Armed Forces pensions when we retired in our 40s.

Very different circumstances and scheme rules, though.  By commuting, we were able to clear our mortgage nearly 20 years early, bearing in mind that we were paying over 7%.  Then, when we hit 55, our pensions were restored to their pre commutation value and then fully index linked back to the day we left.