To Leave it or Lump it?

Tiki30

If in very fortunate position not to need the lump sum from private DB pension would it be better just to leave it and have increased annual pension? Lump sum is around 110k v around 6k annually increasing with CPI or 3%. Age 65, no dependants, decent health.

Dazed_and_C0nfused

Is £6k post tax or would you really only be getting £4.8k (or even £3.6k) after tax?

Either way would you expect to be able to get the same return from £110k with no risk?

Albermarle

around 6k annually increasing with CPI or 3%. 

Do you mean increasing with CPI with no cap ? and even if CPI was less than 3% , you would still get a minimum 3%.

If so that is better than the usual deal and considering the commutation rate is around 18, which is not that great , it would point to not taking the lump sum.

Tiki30

Would be £4.8k after tax.  The lump sum would just be in best fixed rate savings accounts I could find.
Happy with current investment risks and not looking to put this money at investment risk. Inflation  risks are already a concern but hopefully shorter term in pension context.

Tiki30

Albermarle said:

around 6k annually increasing with CPI or 3%. 

Do you mean increasing with CPI with no cap ? and even if CPI was less than 3% , you would still get a minimum 3%.

If so that is better than the usual deal and considering the commutation rate is around 18, which is not that great , it would point to not taking the lump sum.

Says by the lower of increase in CPI or 3% each year.

Tiki30

Sorry, pension accrued after 2005 that went down to 2.5%. (Started 1991)

Tiki30

Sorry can't see how to edit my posts here but another correction. Lump sum figure was last year so should be around £118k at time of accessing later this year.

NedS

Tiki30 said:

Albermarle said:

around 6k annually increasing with CPI or 3%. 

Do you mean increasing with CPI with no cap ? and even if CPI was less than 3% , you would still get a minimum 3%.

If so that is better than the usual deal and considering the commutation rate is around 18, which is not that great , it would point to not taking the lump sum.

Says by the lower of increase in CPI or 3% each year.

So it's CPI inflation, capped at 3%.

Your guaranteed return by taking the extra pension is 4.36%, inflation linked (with 3% cap). Unless you have a specific use for the £110,000 I would take the extra pension. Makes no sense to put it in a fixed rate interest account earning 2% with no protection against inflation.

Do you have other cash savings / emergency funds to fall back on if required?

dunstonh

Tiki30 said:

If in very fortunate position not to need the lump sum from private DB pension would it be better just to leave it and have increased annual pension? Lump sum is around 110k v around 6k annually increasing with CPI or 3%. Age 65, no dependants, decent health.

Which fits best with your wider circumstances?  Decisions like these may have one method better than the other on paper but when you factor in circumstances it could sway it the other way.

You don't need the lump sum now but what about later? 
Is there a spouse/partner whose retirement planning is not as good as yours? (you could use excess lump sum to improve their provision  - although you could also potentially use the income to feed their provision but risk of early death)
What is your income tax position throughout retirement?

Tiki30

NedS said:

Tiki30 said:

Albermarle said:

around 6k annually increasing with CPI or 3%. 

Do you mean increasing with CPI with no cap ? r guaranteed return by taking the extra pension is 4.36%, inflation linked (with 3% cap). Unless you have a specific use for the £110,000 I would take the extra pension. Makes no sense to put it in a fixed rate interest account earning 2% with no protection against inflation.

Do you have other cash savings / emergency funds to fall back on if required?

It's capped at 2.5% it seems. 
I have more than sufficient to fall back on thankfully.

Tiki30

dunstonh said:

Tiki30 said:

If in very fortunate position not to need the lump sum from private DB pension would it be better just to leave it and have increased annual pension? Lump sum is around 110k v around 6k annually increasing with CPI or 3%. Age 65, no dependants, decent health.

Which fits best with your wider circumstances?  Decisions like these may have one method better than the other on paper but when you factor in circumstances it could sway it the other way.

You don't need the lump sum now but what about later? 
Is there a spouse/partner whose retirement planning is not as good as yours? (you could use excess lump sum to improve their provision  - although you could also potentially use the income to feed their provision but risk of early death)
What is your income tax position throughout retirement?

Unlikely to need later but of course never say never, can only make decisions based on what I think right now.
No mortgage or debts and just me myself and I to think about in terms of my finances.

I expect my income tax position to be maintained at basic rate.