Not taking lump sum..

Pensioner2023

I have state pension forecast and will be claimjng from early next year. NHS pension forecast (still to be confirmed) is c.8k per year.
I am thinking longevity rather than high living(!) and plan not to take any lump sum at all. I would prefer to have cash on a monthly basis which will.. very slightly... increase year on year.
I have some cash in a private pension plan which I intend to leave untouched for as long as possible.
Can anyone advise if I am missing something obvious in my master plan please?
Modest lifestyle, no mortgage or debt...

Marcon

Pensioner2023 said:

I have state pension forecast and will be claimjng from early next year. NHS pension forecast (still to be confirmed) is c.8k per year.
I am thinking longevity rather than high living(!) and plan not to take any lump sum at all. I would prefer to have cash on a monthly basis which will.. very slightly... increase year on year.
I have some cash in a private pension plan which I intend to leave untouched for as long as possible.
Can anyone advise if I am missing something obvious in my master plan please?
Modest lifestyle, no mortgage or debt...

In times of high inflation, 'very slightly' is something of an understatement. The 'old days' when folk wisdom suggested that taking maximum cash always made sense (it didn't) are long gone. If you have no mortgage or debt, then it's hard to see why you'd need to take a tax-free cash lump sum from your NHS pension. Where would you invest it to get such a great, and guaranteed, year on year increase?

Brie

An IFA I talked to claimed that there was more to be made by investing the lump sum then what I might get over the life of the pension if I didn't take it.  Not sure how valid that is.  The only obvious value of a lump to me was to tidy up my finances in general and to get me through to my state pension comfortably.  

MallyGirl

Brie said:

An IFA I talked to claimed that there was more to be made by investing the lump sum then what I might get over the life of the pension if I didn't take it.  Not sure how valid that is.  The only obvious value of a lump to me was to tidy up my finances in general and to get me through to my state pension comfortably.  

The value of shares goes up and down. They might be right but performance has been downward until recently. The terms of the pension increases vary significantly from one DB Pension to another - some are capped, etc.  It depends on whether you want to manage investments yourself or keep life simple. Only hindsight will tell you what the right answer was.

Clueless56

I'll be 5 or 6 years behind you in reaching retirement, but my plan is the same: to take no lump sums from the DB pensions to maximise monthly income, and leave my DC pension untouched for as long as possible.  Please do report back how it goes for you.   

Albermarle

Clueless56 said:

I'll be 5 or 6 years behind you in reaching retirement, but my plan is the same: to take no lump sums from the DB pensions to maximise monthly income, and leave my DC pension untouched for as long as possible.  Please do report back how it goes for you.   

This is approx. what I am doing starting last year. Although the DB pension is not that big, I have plenty of cash savings and DC , so best to maximise the guaranteed income. The large majority do take the lump sums though, and see it as a retirement bonus for a holiday, new car etc.

sheslookinhot

My reasons for taking a lump sum, with my DB pension and not the maximum I could take, is to minimise higher rate tax and potentially, if it’s not spent, leave a small inheritance. 

It’s not a clear cut answer to a much asked question.

Kynthia

sheslookinhot said:

My reasons for taking a lump sum, with my DB pension and not the maximum I could take, is to minimise higher rate tax and potentially, if it’s not spent, leave a small inheritance. 

It’s not a clear cut answer to a much asked question.

Yes, many factors can influence the answer and everyone's circumstances are different.

I personally have the majority of my pension as DB pension. Therefore I would take the lump sum to increase the flexibility of my funds, for example spending more in the earlier years on holidays or lump sums for helping children with weddings/house deposits, or to increase the amount inheritable.

xylophone

I am thinking longevity rather than high living(!) and plan not to take any lump sum at all. I would prefer to have cash on a monthly basis which will.. very slightly... increase year on year.

Your NHS pension is fully index linked to CPI.

What is shown on your state pension forecast?

Stubod

If you don't really need a cash lump sum and health is not an issue, I would always recommend not taking it. Better to have a higher monthly income IMHO?

MallyGirl

I think it depends on the numbers. My only DB Pension pay £3500 ish pa or £2900 ish with an £11k lump sum. It won't pay the gas & elec either way so freeing up £11k in cash doesn't seem a material hit to the DB. I need to look at the annual increase terms in case it is miraculously generous but I doubt it