We'd like to remind Forumites to please avoid political debate on the Forum. This is to keep it a safe and useful space for MoneySaving discussions. Threads that are - or become - political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.

Pension to lump sum conversion rates?

Hi

i am thinking of taking my DB next year and the conversion rate from pension to lump is around 21

Am I correct in thinking that if the pension money I am giving up is taxed at 20% then the actual conversion rate is 25? (21 x 1.2)

If the above is correct then it would take 25 years to get my money back if I didn’t take the lump sum (ignoring inflation)

Have I got this right or have I got the figures wrong

Thanks

Comments

  • Dazed_and_C0nfused
    Dazed_and_C0nfused Posts: 16,153 Forumite
    10,000 Posts Fourth Anniversary Name Dropper
    edited 5 October 2024 at 12:00PM
    Miiade said:
    Hi

    i am thinking of taking my DB next year and the conversion rate from pension to lump is around 21

    Am I correct in thinking that if the pension money I am giving up is taxed at 20% then the actual conversion rate is 25? (21 x 1.2)

    If the above is correct then it would take 25 years to get my money back if I didn’t take the lump sum (ignoring inflation)

    Have I got this right or have I got the figures wrong

    Thanks
    Nearly.  The conversion rate would be 26.25.

    Which is definitely worth considering if you have a use for the money.

    The inflation protection your pension has is a factor.  Some are unlimited CPI (public sector) and others can be capped at a max of 2.5%.

    And your lifespan as well, if you are taking this at 60 the pension might be in payment for 40+ years 🤞
  • molerat
    molerat Posts: 33,471 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 5 October 2024 at 12:03PM
    More like 26.25.  For every £100 pension you get £80 in your pocket or £2100 as a lump sum.  But don't forget that £100 will increase with (some form of) inflation automatically each year but the lump sum will only increase (or decrease) with whatever investment vehicle you choose so the comparison is not black and white.
  • Miiade
    Miiade Posts: 69 Forumite
    Eighth Anniversary 10 Posts Combo Breaker
    Thanks for the replies both.

    Yes I have a use for the lump sum so will be taking the maximum allowed
  • If relevant to you, check the impact of taking a lump sum on spouse's pension if you die first, etc.
    Somehow, my DB scheme pays 50% of the pension amount assuming no lump had been taken, regardless of if you actually took a lump sum or not.  Don't know if this is unique or common, but worth checking and taking into account.
  • If relevant to you, check the impact of taking a lump sum on spouse's pension if you die first, etc.
    Somehow, my DB scheme pays 50% of the pension amount assuming no lump had been taken, regardless of if you actually took a lump sum or not.  Don't know if this is unique or common, but worth checking and taking into account.
    It’s very common for PCLS to only reduce the member’s pension. Both my DB pensions operated in this way.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 348.2K Banking & Borrowing
  • 252.1K Reduce Debt & Boost Income
  • 452.3K Spending & Discounts
  • 240.7K Work, Benefits & Business
  • 617K Mortgages, Homes & Bills
  • 175.6K Life & Family
  • 253.9K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16K Discuss & Feedback
  • 15.1K Coronavirus Support Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.