Pension: Higher lump sum or lower lump sum?

Icicle_Boy

I am coming up to 60, and still work in the public sector. I have a deferred pension which is payable to me when I reach 60.  
 Standard pension benefits: £16,400 per year, lump sum of £49,000
Permitted pension converted to lump sum: £13,130 per year, lump sum of almost £88,000.

I do not intend retiring from my present job. The initial thought was to pay my mortgage off and take the higher lump sum. However, our present mortgage (thankfully) is tied up on a lower interest rate till 2025. Have read historical posts on pensions but would like expert views on the pros and cons please. 



   

Brie

I think it will depend on whatever other pension you have coming along at a later date.  Have you got your state pension forecast?  And what is your current occupational scheme suggesting you'll get at whatever age?  Put that together with the lower annual amount here and see if you think you can live on that.

Must admit though I'd be tempted by that large lump sum.  Assuming it's tax free of course.  If your mortgage rate is so low maybe take the big lump and put it in a high interest account, maybe locked in for 2 years??  Likely you'll be make more than if you paid off the mortgage now assuming you could do so without penalty.   All that said - a redundancy over a year back paid off our mortgage and that was a great relief to know that we didn't need to worry about that any more.  

Marcon

Icicle_Boy said:

I am coming up to 60, and still work in the public sector. I have a deferred pension which is payable to me when I reach 60.  
 Standard pension benefits: £16,400 per year, lump sum of £49,000
Permitted pension converted to lump sum: £13,130 per year, lump sum of almost £88,000.

I do not intend retiring from my present job. The initial thought was to pay my mortgage off and take the higher lump sum. However, our present mortgage (thankfully) is tied up on a lower interest rate till 2025. Have read historical posts on pensions but would like expert views on the pros and cons please. 



   

Very poor commutation rate. You're giving up a lot of future (index linked) income...

MEM62

Take the lower lump sum and throw that at your mortgage.  Use the additional £3,270 income that you have not given up towards servicing your (somewhat reduced) mortgage payments.  Once the mortgage is cleared your will be £3,270 per annum better off.  

xylophone

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Icicle_Boy

xylophone said:

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Thanks for that mate. Better than nothing, but wonders where all my tax /NI has gone these last 40 years to receive something so minuscule.

Icicle_Boy

MEM62 said:

Take the lower lump sum and throw that at your mortgage.  Use the additional £3,270 income that you have not given up towards servicing your (somewhat reduced) mortgage payments.  Once the mortgage is cleared your will be £3,270 per annum better off.  

Thank you for that 

eastcorkram

Icicle_Boy said:

xylophone said:

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Thanks for that mate. Better than nothing, but wonders where all my tax /NI has gone these last 40 years to receive something so minuscule.

What did it say??

RogerPensionGuy

If I worked out the commutation rare from the OP correctly. 

It's just 11.93 and appears very low.

I just worked out if OP could not accept any tax-free cash if possible and using 11.93 it will make pension PA from 16.4K to 20.5K and obviously loose that 49K tax-free. 

I'm guessing my suggestion isn't possible?

But if it was, the OP could maybe draw the 20.5K PA DB scheme and could allow a big increase of another pension scheme maybe?

Dazed_and_C0nfused

RogerPensionGuy said:

If I worked out the commutation rare from the OP correctly. 

It's just 11.93 and appears very low.

I just worked out if OP could not accept any tax-free cash if possible and using 11.93 it will make pension PA from 16.4K to 20.5K and obviously loose that 49K tax-free. 

I'm guessing my suggestion isn't possible?

But if it was, the OP could maybe draw the 20.5K PA DB scheme and could allow a big increase of another pension scheme maybe?

I think the 11.93 will just be due to rounding by the op as it's remarkably close to the typical rate of 12 used in a lot of public sector schemes.

I think inverse commutation is often around 20:1 at normal scheme pension age so the extra pension could well only be ~£2.5k.

Icicle_Boy

eastcorkram said:

Icicle_Boy said:

xylophone said:

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Thanks for that mate. Better than nothing, but wonders where all my tax /NI has gone these last 40 years to receive something so minuscule.

What did it say??

Works out at just over £10k a year in 7 years time