I can take a gov pension early but....

QrizB

kassy64 said:

Are you taking into account the £500 per month (£6,000 pa) interest I currently recieve from the lump sum total I currently have.

Yes, the mortgage option still gives you the cash to do what you wish with, even put in the bank and enjoy the interest rolling in.

kassy64 said:

I’m sure your facts are correct and £ for £ is probably the right thing to do if I wanted to accumulate as much as possible to pass on to my children, but not everything is black and white and we all have our reasons for doing things the way we do. I stick by my decision. 

We all make the best decisions we can with the information we hold at the time.

AlanP_2

kassy64 said:

Linton said:

kassy64 said:

Silvertabby said:

QrizB said:

MikMikandThriceMik said:

Silvertabby said:

Depending on when you left, and the actual scheme rules (NI regs sometimes differ) you may be able to realise a larger tax free lump sum by commuting (giving up) some of your annual pension.  But this would be at the pretty poor rate of 1:12 (permanently lose £1 of fully index linked pension for the rest of your life for each £12 of tax free cash).

Whichever option you go for, the lump sum is totally tax free.

That is exactly what I plan on doing. Thank you.

If I was to offer you a loan of £12000 and say your payments would be £1000 a year, increasing annually by CPI, for the rest of your life, you'd run a mile. But that's more-or-less what you're agreeing to with 12:1 commutation.

Exactly.  Yet 90% of LGPS retirees (probably other public sector pensioners as well) do go for maximum commutation.

And why not, it means they are able to retire early (I retired at 57 from the Civil Service after 41 years service) get a hefty lump sum (earning me well over £500 per month in interest) and still have a fairly decent annual pension (backed by inflation). You have to factor in that people want/need the extra funds in their 50s and 60s and enjoy a fantastic life whilst their young enough to enjoy it. The state pension kicks in at 67, so yes if you want to be rolling in cash in your 70s and 80s take the pension but personally I have no regrets about taking the max lump sum now and getting out, if I hadn't then I would probably still be working (shifts) which doesn't appeal thanks. It's not as simple as you make out.

What makes you think you wont be young enough to enjoy "a fantastic life" in your 70's and 80's.  These days many people are in good health well beyond state pension age.  Those who are not may want to pay for support/care at home. Your future self may seriously regret the money you squandered when young.

It seems a pity to partially lose out on the very good deal offered by a Civil Service pension because one wasnt prudent enough to have saved the money outside the pension to pay for early retirement.

Sorry I don't agree with you, and you really shouldn't be commenting on how 'prudent' I am without knowing my full circumstances. You've hit the nail on the head there, PARTIALLY, I still have a very good annual pension linked to inflation and I'm now retired. Yes it's slightly less than had I not commuted the full amount. Your missing the point, by taking the additional lump sum enables many civil servants to retire early, for me it was a decision to take the extra lump sum and retire or carry on working for 2+ more years (well worth a few extra pounds per month). After working shifts for 41 years it was a no brainer and I stand by my decision as I am now far more healthier and happier. I have over £1m in equity in my property as a fallback should the civil service pension scheme collapse (which isn't going to happen). Thanks for your thoughts though.
Ps - That many Civil Servants cant all be wrong. They tend to be sensible PRUDENT people!

I recently took my local gov pension and didn't commute anything as I thought the commutation rate was terrible.

Everyone is different I know and will arrive at a decision that suits them, but I'm intrigued - how does taking the additional lump sum enable early retirement?

I can see it might if you had a mortgage or something to clear but if there is no defined need for it but if not how does it help?

hugheskevi

I recently took my local gov pension and didn't commute anything as I thought the commutation rate was terrible.

Everyone is different I know and will arrive at a decision that suits them, but I'm intrigued - how does taking the additional lump sum enable early retirement?

I can see it might if you had a mortgage or something to clear but if there is no defined need for it but if not how does it help?

Taking the lump sum moves pension income from later in life to earlier in life by replacing an ongoing income with a one-off lump sum. Using the lump sum can be convenient to smooth income over the full course of retirement, as the additional resources can be used early in retirement and then the State Pension starts at a later age. Without doing this,  the public sector pension alone may be insufficient to enable early retirement.

However, the 12:1 commutation rate is bad enough at Normal Retirement Age, and it just gets worse the earlier you commence the pension.

Fortunately, the pension freedoms of 2015 were a perfect solution - those with big DB pensions are ideally placed to bear the risk of a DC pension, and can then use that in the part of their retirement before State Pension age to smooth their income over their whole of their retirement whilst also benefitting from tax relief on the DC contributions and the 25% tax free lump sum - this is especially attractive for LGPS members due to the ability to take a higher DC lump sum due to the rules of the scheme. LISAs might also have a role to play for basic rate taxpayers, but with low contribution limits and inability to contribute after age 50 it is likely to be of limited use. 

However, I come across very few public sector workers who are making voluntary DC contributions. The Child Benefit taper is probably the biggest prompt for them to do so.

Purplelady65

hugheskevi said

However, I come across very few public sector workers who are making voluntary DC contributions. The Child Benefit taper is probably the biggest prompt for them to do so.

I am one of the few! Child benefit no longer applies for me as my kids are all grown up. However I am in the NHS pension scheme and from reading the pension threads on this forum realised I could open a SIPP and then pay in the amount of salary I was paying 40% tax on as I will be a basic rate tax payer in retirement. It’s not a large amount but will help in bridging the gap between retirement (hopefully at 60) and receiving a full state pension and my NHS 2015 part of the pension at 67. Thank you to the OPs who have done the calculations on taking out a loan or mortgage v. A reduced pension - very interesting. 

r6mile

hugheskevi said:

I recently took my local gov pension and didn't commute anything as I thought the commutation rate was terrible.

Everyone is different I know and will arrive at a decision that suits them, but I'm intrigued - how does taking the additional lump sum enable early retirement?

I can see it might if you had a mortgage or something to clear but if there is no defined need for it but if not how does it help?

Taking the lump sum moves pension income from later in life to earlier in life by replacing an ongoing income with a one-off lump sum. Using the lump sum can be convenient to smooth income over the full course of retirement, as the additional resources can be used early in retirement and then the State Pension starts at a later age. Without doing this,  the public sector pension alone may be insufficient to enable early retirement.

However, the 12:1 commutation rate is bad enough at Normal Retirement Age, and it just gets worse the earlier you commence the pension.

Fortunately, the pension freedoms of 2015 were a perfect solution - those with big DB pensions are ideally placed to bear the risk of a DC pension, and can then use that in the part of their retirement before State Pension age to smooth their income over their whole of their retirement whilst also benefitting from tax relief on the DC contributions and the 25% tax free lump sum - this is especially attractive for LGPS members due to the ability to take a higher DC lump sum due to the rules of the scheme. LISAs might also have a role to play for basic rate taxpayers, but with low contribution limits and inability to contribute after age 50 it is likely to be of limited use. 

However, I come across very few public sector workers who are making voluntary DC contributions. The Child Benefit taper is probably the biggest prompt for them to do so.

This is exactly my situation. I am a civil servant with 3 kids and my salary is just over the HICBC threshold so I am signing up to the AVC scheme and trying to engineer contributions that will keep me below the threshold. 

However as the scheme doesn’t allow lump sums - only regular contributions - I have to calculate what % contribution to put in for payroll. Ie it’s just been announced that Civil Servants will get a £1500 “cost of living payment” but in my case that will go straight into my pension (as my marginal rate is around 70%, not factoring marriage allowance) so have to factor that in.

Sarahspangles

@hugheskevi

However, I come across very few public sector workers who are making voluntary DC contributions. The Child Benefit taper is probably the biggest prompt for them to do so.

Another one here. Some public sector staff stay in roles that they either no longer enjoy, or find exhausting, in the hope they’ll be ‘released’ as a cost saving. I’d rather control the timing myself.

I will have public sector defined benefit pensions coming into payment at 60, 65 and 67 plus State pension. I combined two defined contribution pots from short contracts in other sectors into a SIPP that I’m now paying into alongside an NHS CARE pension. Both the dc pots were built up after pension freedoms started, so I contributed the maximum that my employer would match, even though I could have taken it as salary and cleared my mortgage earlier.

One of the db pensions comes with a mandatory lump sum, if I can make it work with allowances that year that will go into my SIPP as well.

Qyburn

kassy64 said:

Are you taking into account the £500 per month (£6,000 pa) interest I currently recieve from the lump sum total I currently have. 

You calculated that you are better off with the lump sum, I don't think anyone is questioning that. It's just that running the figures might help other see whether it also suits them.

If you gave up £500 per month, that means a lump sum of £72,000, which you put into a savings account currently paying 8.33%. Whether that's a good deal or not depends on the individual. Not everyone is going to get that sort of interest rate, and even that doesn't keep up with inflation right now. Or they may be liable for tax on that interest. 

So it really depends on whether you need the lump sum. Or if there's a chance you might need it, in which case the only option is to take it at the start and try to get some interest out of it until it's needed.

I'm making an assuption that the lump sum option is only available at the time the pension is taken, ie you can't change your mind.

michaels

r6mile said:

hugheskevi said:

I recently took my local gov pension and didn't commute anything as I thought the commutation rate was terrible.

Everyone is different I know and will arrive at a decision that suits them, but I'm intrigued - how does taking the additional lump sum enable early retirement?

I can see it might if you had a mortgage or something to clear but if there is no defined need for it but if not how does it help?

Taking the lump sum moves pension income from later in life to earlier in life by replacing an ongoing income with a one-off lump sum. Using the lump sum can be convenient to smooth income over the full course of retirement, as the additional resources can be used early in retirement and then the State Pension starts at a later age. Without doing this,  the public sector pension alone may be insufficient to enable early retirement.

However, the 12:1 commutation rate is bad enough at Normal Retirement Age, and it just gets worse the earlier you commence the pension.

Fortunately, the pension freedoms of 2015 were a perfect solution - those with big DB pensions are ideally placed to bear the risk of a DC pension, and can then use that in the part of their retirement before State Pension age to smooth their income over their whole of their retirement whilst also benefitting from tax relief on the DC contributions and the 25% tax free lump sum - this is especially attractive for LGPS members due to the ability to take a higher DC lump sum due to the rules of the scheme. LISAs might also have a role to play for basic rate taxpayers, but with low contribution limits and inability to contribute after age 50 it is likely to be of limited use. 

However, I come across very few public sector workers who are making voluntary DC contributions. The Child Benefit taper is probably the biggest prompt for them to do so.

This is exactly my situation. I am a civil servant with 3 kids and my salary is just over the HICBC threshold so I am signing up to the AVC scheme and trying to engineer contributions that will keep me below the threshold. 

However as the scheme doesn’t allow lump sums - only regular contributions - I have to calculate what % contribution to put in for payroll. Ie it’s just been announced that Civil Servants will get a £1500 “cost of living payment” but in my case that will go straight into my pension (as my marginal rate is around 70%, not factoring marriage allowance) so have to factor that in.

The LGPS scheme has special treatment of the DC part of the pension allowing your 25% TFLS to be based on your total pension pot 'value' including the DB which may be very beneficial in terms of taxation.

The CS scheme does not share this advantage which means you will get the same tax advantage using a standalone SIP as you would using the CSAVCS scheme - the upshot of this is you can just make a payment into a standalone sipp towards the end of the tax year for the required amount to meet your overall income goals rather than trying to work out now what the impact of any potential pay rise, bonus, £1500 don't go on strike bung etc might mean for regular contributions.

r6mile

michaels said:

r6mile said:

hugheskevi said:

I recently took my local gov pension and didn't commute anything as I thought the commutation rate was terrible.

Everyone is different I know and will arrive at a decision that suits them, but I'm intrigued - how does taking the additional lump sum enable early retirement?

I can see it might if you had a mortgage or something to clear but if there is no defined need for it but if not how does it help?

Taking the lump sum moves pension income from later in life to earlier in life by replacing an ongoing income with a one-off lump sum. Using the lump sum can be convenient to smooth income over the full course of retirement, as the additional resources can be used early in retirement and then the State Pension starts at a later age. Without doing this,  the public sector pension alone may be insufficient to enable early retirement.

However, the 12:1 commutation rate is bad enough at Normal Retirement Age, and it just gets worse the earlier you commence the pension.

Fortunately, the pension freedoms of 2015 were a perfect solution - those with big DB pensions are ideally placed to bear the risk of a DC pension, and can then use that in the part of their retirement before State Pension age to smooth their income over their whole of their retirement whilst also benefitting from tax relief on the DC contributions and the 25% tax free lump sum - this is especially attractive for LGPS members due to the ability to take a higher DC lump sum due to the rules of the scheme. LISAs might also have a role to play for basic rate taxpayers, but with low contribution limits and inability to contribute after age 50 it is likely to be of limited use. 

However, I come across very few public sector workers who are making voluntary DC contributions. The Child Benefit taper is probably the biggest prompt for them to do so.

This is exactly my situation. I am a civil servant with 3 kids and my salary is just over the HICBC threshold so I am signing up to the AVC scheme and trying to engineer contributions that will keep me below the threshold. 

However as the scheme doesn’t allow lump sums - only regular contributions - I have to calculate what % contribution to put in for payroll. Ie it’s just been announced that Civil Servants will get a £1500 “cost of living payment” but in my case that will go straight into my pension (as my marginal rate is around 70%, not factoring marriage allowance) so have to factor that in.

The LGPS scheme has special treatment of the DC part of the pension allowing your 25% TFLS to be based on your total pension pot 'value' including the DB which may be very beneficial in terms of taxation.

The CS scheme does not share this advantage which means you will get the same tax advantage using a standalone SIP as you would using the CSAVCS scheme - the upshot of this is you can just make a payment into a standalone sipp towards the end of the tax year for the required amount to meet your overall income goals rather than trying to work out now what the impact of any potential pay rise, bonus, £1500 don't go on strike bung etc might mean for regular contributions.

Thank you, yes I know - I just would rather smooth out these payments over a number of months, and if I can avoid having to speak to HMRC to chase over payments to a personal pension then this feels more straightforward. And from what I can tell the CSAVC scheme has pretty low fees. But I take your points that the tax advantages are the same.

I do still have a personal pension that I could make payments into towards the end of the tax year, if for whatever reason an in-year award or something takes me over the threshold.

michaels

Perhaps one for a new thread, but is it worth thinking about how the TFLS commutation at 1:12 vs a higher pension works out when we look at taxed income?

Ie 12k TFLS = £1k pa less gross pension but £800 pa less net pension for most.  The direct impact impact is thus rather than 12 years for the higher pension to win it is actually 15 years but of course there is then index linking to think about.