Teachers Pension

NEVGAM

Hi,
I have a quick question. I am approaching retirement and am in the process of completing the paperwork. 
I have one area of concern:

I am both NPA 60 scheme and also career average scheme.

From the NPA 60 scheme is suggests you have the option to take an additional lump sum by giving up part of your annual pension.

Is this a wise option or not.

From the calculations, the difference in monthly allowance drops by about £400 per month if the option of additional lump sum is to be chosen.

My question is, what if any are the advantages of taking this additional lump sum.

Kind regards

Pat38493

How much extra lump sum do you get in exchange for forgoing the £400 per month?

Marcon

NEVGAM said:

Hi,
I have a quick question. I am approaching retirement and am in the process of completing the paperwork. 
I have one area of concern:

I am both NPA 60 scheme and also career average scheme.

From the NPA 60 scheme is suggests you have the option to take an additional lump sum by giving up part of your annual pension.

Is this a wise option or not.

From the calculations, the difference in monthly allowance drops by about £400 per month if the option of additional lump sum is to be chosen.

My question is, what if any are the advantages of taking this additional lump sum.

Kind regards

Lots of threads on this board discussing the pros and cons of exchanging pension for a tax free lump sum - perhaps have a browse through those? 'Advantages' will depend on how much cash you get for each £1 of pension given up ('commutation rate') and whether you've got an immediate use for the cash - also your tax rate after retirement.

badmemory

I suspect life expectancy will also figure in this.  To give up almost £5k per annum less tax is quite significant unless you have a specific purpose for the money

Granadalad

An advantage of not taking the lump sum is that your future regular income will be index linked. Unless you think you can invest more successfully, or anticipate poor life expectancy, or desperately need the cash now, then this could be enough to help you make a decision.

Silvertabby

TPS, like other public sector pensions, uses a 1:12 commutation rate.  ie, £12 of tax free cash for £1 of fully index linked pension for the rest of your life.  

This is a pretty poor rate, as I am sure others will be quick to point out - but it really depends on your personal circumstances and your need for immediate cash.

[Deleted User]

You can read about my decision regarding the TPS in this thread;
The Senior Wonder Years! — MoneySavingExpert Forum
However, I agree it is a personal decision depending on circumstances and and choice.
All I will add is that, in my opinion, the one that maximises the financial gain may not always be the right one for every individual, as strange as it may seem to say!

Gary1984

If the ratio is £12 lump sum for £1 of annual pension then that's a poor deal best avoided unless you have a medical condition that significantly reduces your life expectancy or you're in dire need of immediate cash for some reason.

zagubov

I've never met anyone who thinks increasing a lump sum's a good idea unless you've got a serious health condition. We're usually potentially able to outlive our grand/parents.
Maybe check this website to see what future lifespans are typical. https://www.livingto100.com/

[Deleted User]

zagubov said:

I've never met anyone who thinks increasing a lump sum's a good idea unless you've got a serious health condition. We're usually potentially able to outlive our grand/parents.
Maybe check this website to see what future lifespans are typical. https://www.livingto100.com/

Well I did and it worked fine for me! It’s not all about the money. The peace of mind that came from  being mortgage free, debt free and having some savings in the bank surpassed maximum financial gain.
Not everyone manages to save thousands into ISAs or have back up DC pensions. For many the lump sum enables retirement to take place and in my case maximising it made sense.

german_keeper

zagubov said:

I've never met anyone who thinks increasing a lump sum's a good idea unless you've got a serious health condition. We're usually potentially able to outlive our grand/parents.
Maybe check this website to see what future lifespans are typical. https://www.livingto100.com/

My experience is pretty much the complete opposite. Although most of those people are only going by the oft repeated Civil Service myth that says simply "well you've got to take the maximum lump sum you can". The logic however rarely goes any further than "it's tax free and you might die tomorrow". When asked about things like commutation rates and average life expectancy they tend to just have a completely lost expression on their faces.

But I know people who have considered all their options and gone for the maximum lump sum. I wouldn't necessarily have made the same decision but theirs was a perfectly logical one. Paying off mortgage and/or other debts and better equalisation of income pre and post SPA, thereby facilitating earlier retirement, being two that spring to mind. And I also know several, myself included, who have weighed up all their options and decided to reluctantly (!!) not take advantage of the incredibly generous 12:1 commutation rate!! 

My wife has a DB pension due at 60 in about 2 1/2 years. It is highly likely that she will take a lump sum, even though the rate is only 16.5:1. We would then be likely to spend it all before she gets her full state pension at 67 and will of course still have her reduced DB. However, if circumstances change we may make a different decision.