To commute or not commute - that is the question!

juneanne

I have the choice of a widows army pension of just over £203 per month for life (will be subject to inflation increases) or a taxable lump sum of just under £28,000 (which equates to approx 9 years of the monthly payment). I will be 77 this year. Although my monthly income is now less than it was I am financially secure so a lump sum is not urgently needed. Should I (a) take the lump sum and invest it or (b) place lump sum in an account and pay my current account £203 per month or (c) take the £203 monthly pension. Also will lump sum be subject to 20% income tax?

xylophone

 Also will lump sum be subject to 20% income tax?

You have been advised that it is taxable - presumably as below unless there is any special arrangement for widows of armed forces personnel?

https://techzone.abrdn.com/public/pensions/Tech-guide-scheme-death#:~:text=Trivial commutation - The lump sum,in the year it's paid.

Trivial commutation - The lump sum payable from a commutation of a dependant's scheme pension is fully taxable as the dependant's income in the year it's paid.

Will this payment take you into the next tax band?

400ixl

You already have other threads on this topic

https://forums.moneysavingexpert.com/discussion/6513951/to-commute-or-not-commute-that-is-the-question#latest

https://forums.moneysavingexpert.com/discussion/6513967/to-commute-or-not-commute-that-is-the-question#latest

daveyjp

The only reason for withdrawing is because you have a use or need for a lump sum.

Otherwise you are withdrawing money to invest and manage yourself, that makes little sense when it is already invested with a guaranteed inflation proof return.

NickBFS

Invest it for what purpose? If it is to generate extra income for yourself, I do not quite see the point: you would need to generate an income of 8.7% over inflation to match the income from the pension. If it is to invest and pass on to someone else as inheritance when you die, then perhaps?