DB question-lump sum or full pension ?

C_Mababejive

I guess this question has been asked many times before and of course the answer is an individual one based on circumstances but i wonder if there are any useful on line calculators that are relevant or any general perceived wisdom in this area?

Looking at my last statement a year ago it says i can have a pension at 60 of £26,287

or i can have

A TFLS of around £134,500 and a reduced pension of £20,174

Transfer values are no longer an option thanks to Liz Truss

I will be 60 next year and as im reasonably fit and healthy i currently plan for another 20 years in retirement.

Obviously after only a few years of collecting this pension, the total starts to increase a fair bit with compounding.

I guess its a balance between getting money in and paying as little tax as possible.

I'd need to get at least 4.5% on the TFLS somewhere else to bridge the gap and of course its not index linked.

I also have other income streams

All thoughts appreciated

PS- not married

r6mile

Your figures suggest a commutation rate of 22:1 which is pretty decent (public sector pensions ie civil service are usually 12:1). 

Do you have an immediate need for the lump sum? Or would you reinvest it?

Dazed_and_C0nfused

And how is the £20,174 revalued each year?

Is it uncapped CPI or some other measure?

Doctor_Who

C_Mababejive said:

I guess this question has been asked many times before and of course the answer is an individual one based on circumstances but i wonder if there are any useful on line calculators that are relevant or any general perceived wisdom in this area?

Looking at my last statement a year ago it says i can have a pension at 60 of £26,287

or i can have

A TFLS of around £134,500 and a reduced pension of £20,174

Transfer values are no longer an option thanks to Liz Truss

I will be 60 next year and as im reasonably fit and healthy i currently plan for another 20 years in retirement.

Obviously after only a few years of collecting this pension, the total starts to increase a fair bit with compounding.

I guess its a balance between getting money in and paying as little tax as possible.

I'd need to get at least 4.5% on the TFLS somewhere else to bridge the gap and of course its not index linked.

I also have other income streams

All thoughts appreciated

PS- not married

The 'perceived wisdom' is that unless you need the TFLS for something (mortgage etc) then it is often better to take the higher pension. Is there any cap on the index linking of the pension, if not it's even more valuable! You will pay less tax on the lower pension, but have you factored paying tax on interest on the TFLS? Is this an all or nothing option, or could you choose somewhere in between? 

RogerPensionGuy

Getting 134K into an ISA whatever product would take a few years is a point.

Maybe 50K premium bonds and flow the residual in to ISA stuff over time and then plonk the premium bonds into any ISA vehicles going on if you liked. 

As your about 60ish, if you thinking about the future, maybe buy a different accommodation in the next few years that has value to you life.

Maybe let you pension cook a bit, maybe crystallised numbers make it ramp up vary effectively and use other cash flows in the period and then when activating pension decide if you want to chunk out any tax-free cash.

Have you got a full state pension at 67?

If you wanted to potentially leave some cash for others after your day, maybe getting tax-free cash is an effective way to augment stuff as you always have the tax-free available, but maybe you pass it on if suitable. 

I'm sure you will get some good views on here.

I'm in a not too dissimilar situation to yourself and I'm taking a lot of time mulling over my route on getting full tax-free, partial or none at all, I'm very aware that when activation has occurred there's no changing decision. 

A big question, is your DB scheme inflation linked and is it capped at a maximum % uplift in any year?

MX5huggy

The commutation rate is better than most as said. Factor in that you’ll pay tax on the extra pension. Then I presume you’ll get full state pension (check) at 67 I think I would take the TFLS to fund you through the 7 years with an extra £15k per year.

Marcon

C_Mababejive said:

I guess this question has been asked many times before and of course the answer is an individual one based on circumstances but i wonder if there are any useful on line calculators that are relevant or any general perceived wisdom in this area?

Looking at my last statement a year ago it says i can have a pension at 60 of £26,287

or i can have

A TFLS of around £134,500 and a reduced pension of £20,174

Transfer values are no longer an option thanks to Liz Truss

I will be 60 next year and as im reasonably fit and healthy i currently plan for another 20 years in retirement.

Obviously after only a few years of collecting this pension, the total starts to increase a fair bit with compounding.

I guess its a balance between getting money in and paying as little tax as possible.

I'd need to get at least 4.5% on the TFLS somewhere else to bridge the gap and of course its not index linked.

I also have other income streams

All thoughts appreciated

PS- not married

Transfer values remain an option regardless of Liz Truss! It's whether they are a good idea in your own situation that really matters.

If you aren't married, there's unlikely to be any benefit from the spouse's pension attached to your DB pension. For the record/other people reading this thread, be aware that if you take tax free cash, it's only your own pension which is impacted - survivors' pensions are calculated on the basis that you didn't take any cash, whatever choice the member makes.

Pat38493

What are the increase rates on the pension in retiremen - are the increases capped and/or having minimums?  If you really want to go into this in detail, I think you have to weigh up the commutation factor against the increase in retirement rules of the pension in payment.

Marcon

Pat38493 said:

What are the increase rates on the pension in retiremen - are the increases capped and/or having minimums?  If you really want to go into this in detail, I think you have to weigh up the commutation factor against the increase in retirement rules of the pension in payment.

Perhaps rather more telling would be whether any discretionary increases have been granted to pensioners in the last year, with inflation roaring well about statutory minimum increase rates.

kipsterno1

I'm in the camp that if you are fit and healthy and have no pressing need for the lump sum take the higher pension. Is there scope to taking a lower lump sum say commuting 15% rather than 25%?

Farside71

RogerPensionGuy said:

If you wanted to potentially leave some cash for others after your day, maybe getting tax-free cash is an effective way to augment stuff as you always have the tax-free available, but maybe you pass it on if suitable. 

From speaking to work colleagues who have DB pensions in payment this seems to be quite a common reason among them and their ex workmates, as the pension is perceived to die with them so they take money out to preserve it in case they die early.  I'm not saying it's the right thing to do but for people who have worked hard their whole lives it makes a lot of sense psychologically.