Early retirement options

gerdo

@molerat yes that's correct
@Dazed just to cover upcoming costs.

Dazed_and_C0nfused

You can see the recent annual % increases on the BT pension website.

There seems to be 3 schemes which are based on the date of joining the scheme.

If you can say what scheme she is under it would help.

garmeg

gerdo said:

Hello all, my wife wants to take her DB pension early (59). The options she has been given are as follows
£6585 annual pension, £1896 annual increasing pension and £30000 lump sum
£5447 annual pension, £5447 annual increasing pension and £30000 lump sum

I know it's hard to say which is the best option but any suggestions welcome. If she took the smaller amount, roughly how many years would it take for it to reach the same value as the bigger amount? 

Thanks. 

Comparing these it looks like by giving up an escalating pension of £3,551 you get a level pension of £4,689.

Ratio is 132%

Looks a "meh" deal to me. But fantastic if you believe inflation is going to stay very low for the next 35 years.

Personally I would take the full escalating £5,447.

barnstar2077

enthusiasticsaver said:

Option 1a shows a lower lump sum of £18056 and full pension increase on £6018.74. That means the whole pension increases each year but it is not clear whether linked to RPI or CPI. I would always opt for the maximum increasing one. 

I'm with ES on this one.  I would always take the maximum increasing one and make it work.  Could the upcoming costs that you mentioned not be covered in any other way?

gerdo

@Dazed I found it, she's in the B pension which increases inline with CPI. 
@Barnstar She's decided on the £30k and it's non negotiable !!

tigerspill

I have the same pension (I recognise the screen).  I went for option 2B as I had AVCs.
So I went for the higher initial pension, but only some index linked (RPI in my case).  Mine worked out that 60% was indexed and 40% fixed.  With RPI at 3.5% average, it was going to take 23 years to make full indexing to work out better (cumulative payments).  And SP kicks in later to make up for lost indexing.
Your numbers may work out different.
Obviously if inflation is higher, I will lose out more.  But it is capped at 5ish% anyway, so if inflation goes much higher, we lose out anyway.
I sent in my confirmation today for payment in January.

gerdo

@tigerspill, thanks that's what I'm trying to work out, if she takes the maximum pension with the lowest index linked value, how long will it take for her to start losing out.

tigerspill

gerdo said:

@tigerspill, thanks that's what I'm trying to work out, if she takes the maximum pension with the lowest index linked value, how long will it take for her to start losing out.

I used a pretty simple spreadsheet to model to 90 years old each.  Make sure you use net income with tax off.  Make assumptions about average inflation.