Lump Sum or not?

thelastsuspect1962

Hi guys, hope everyone is having a good day?
I was hoping to get some of your opinions.
I will be 60 in November and I am looking to retire, I will be getting a defined benefit pension. My plan was to take the max lump sum which would be around 53k with a yearly pension of 9.2 k and use the lump sum as a sort of draw down of say 6 or 7k a year until my state pension kicks in at 67.
I last had a SP forecast in Oct 2021 and it said if I contribute another year before 2029 I will get the full pension, So I guess I would be good for that now? Anyhow If I didn't take the Lump sum the Pension would be 12.2k a year. I think the communication rate is 23 so not sure if that is good or bad?
Any thoughts from anyone would be much appreciated, many thanks!

Brie

Do you have other savings you could live off?  Is the normal retirement age for the DB pension 60 or something else?  Basically are it being reduced for being taken early?

Any other pensions kicking about anywhere??

Sounds a reasonable plan on the surface.  

Albermarle

Whether 23 is good or bad depends on the terms of the pension.
For example if the pension did not increase with inflation at all, it would be good.
If it had full uncapped inflation linking , it would not be so good.
If the pension is more typical , with inflation linking with a cap ( 4%?) and a 50% spouse pension, then 23 is about right.

Whetehr to take the lump sum or not depends on what other financial assets you have. Might to better to use those ( if you have any ) to fund the years to SP and keep the full pension.

thelastsuspect1962

Hi Albermarle, Thanks for your reply, I think the inflation linking is capped at 5% I am Single so the spouse pension does not come into it. I do have other savings but I wanted to keep as much of that as I could to fund a house purchase in the not too distant future. 

thelastsuspect1962

Thanks Brie, hopefully I have covered your question above.

NedS

Generally the advice here is to only take the lump sum if you have a specific reason to do so. It's costing you in the form of a reduced pension for life.

How much do you need to live on each year. Taking a reduced pension of £9.2k, plus a full state pension of £9.6k at 67, would give you a total income of around £18.8k from 67. Is that enough? If so, then I can understand how taking the lump sum to even out income between 60 and 67 may be attractive.

Your numbers don't sound huge, but some people manage on less. Do you have any other income / pensions or savings?

Audaxer

thelastsuspect1962 said:

Hi guys, hope everyone is having a good day?
I was hoping to get some of your opinions.
I will be 60 in November and I am looking to retire, I will be getting a defined benefit pension. My plan was to take the max lump sum which would be around 53k with a yearly pension of 9.2 k and use the lump sum as a sort of draw down of say 6 or 7k a year until my state pension kicks in at 67.
I last had a SP forecast in Oct 2021 and it said if I contribute another year before 2029 I will get the full pension, So I guess I would be good for that now? Anyhow If I didn't take the Lump sum the Pension would be 12.2k a year. I think the communication rate is 23 so not sure if that is good or bad?
Any thoughts from anyone would be much appreciated, many thanks!

I think a commutation factor of 23 is pretty good, and as you need an additional £6k or £7k per year for 7 years, taking the lump sum will give you that, whereas the increased pension is only going to give you an extra £3k per year. On the basis of your figures given, taking the lump sum seems to give you what you need, but it's entirely your decision. Good luck.

thelastsuspect1962

Hi Ned, When I get my SP I should be fine just need to need to tie myself over until the time comes. At the moment my wage is around 15k a year and I seem to manage OK on that, Single, mortgage paid off and not a big spender, so my thinking was take the lump sum and draw down what I need for the next seven years and maybe I might have a little left over at the end? I know most people on here say take the max pension but I am also thinking of the tax I will have to pay now and when I get to SP age. Thanks everyone so far with your replies.

Dazed_and_C0nfused

Maybe I'm missing something here but isn't £53k in return for giving up £3k (£12.2k becomes £9.2k) a commutation factor of 17.66, not 23??

Assuming the pension has some form of inflation increase it doesn't seem a great offer unless the £53k was desperately needed.

My plan was to take the max lump sum which would be around 53k with a yearly pension of 9.2 k and use the lump sum as a sort of draw down of say 6 or 7k a year until my state pension kicks in at 67.

I last had a SP forecast in Oct 2021 and it said if I contribute another year before 2029 I will get the full pension, So I guess I would be good for that now? Anyhow If I didn't take the Lump sum the Pension would be 12.2k a year.

Albermarle

Dazed_and_C0nfused said:

Maybe I'm missing something here but isn't £53k in return for giving up £3k (£12.2k becomes £9.2k) a commutation factor of 17.66, not 23??

Assuming the pension has some form of inflation increase it doesn't seem a great offer unless the £53k was desperately needed.

My plan was to take the max lump sum which would be around 53k with a yearly pension of 9.2 k and use the lump sum as a sort of draw down of say 6 or 7k a year until my state pension kicks in at 67.

I last had a SP forecast in Oct 2021 and it said if I contribute another year before 2029 I will get the full pension, So I guess I would be good for that now? Anyhow If I didn't take the Lump sum the Pension would be 12.2k a year.

You are right, I did not check the OP's maths ! So less attractive than first thought to take the lump sum.