Should I see a IFA

katelina

bjorn_toby_wilde said:

katelina said:

MallyGirl said:

katelina said:

Sarahspangles said:

katelina said:

Ohhhhh we have holidays don't you worry and that is what I don't want to give up lol 

I'm thinking to just transfer the Standard Life to Scottish widows to tidy everything up and I think its transferrable and free to transfer.
We don't have huge wages and are able to manage on husbands wage if we didn't have a Mortgage. We are very careful with our money and don't have any habits other than our holidays. 
Some of us dream of huge pension pots but for us it wasn't to be

So are you able to start your own pension into payment and clear the mortgage? How much are you short?

Sorry I don't know what you mean. I really am pension illiterate. To clear the mortgage at the moment I would need £44500. The 25% tax free amount is approx £22/23k so not enough to pay the morgage. Hence I thought I could use it to give me an income each month of approx. £600 that with the £270 a month pension I will get will be enough to cover the mortgage,

25% of what? Are you calculating 25% of the transfer value of your DB pension? Assuming that you will progress with that plan?
As previously mentioned, you would need to pay for advice to progress this transfer - prices for this fall somewhere in the range of £5k to £10k. This would be a big chunk from the transfer value.

The 25% tax free that you're allowed to take when you take your Pension.
My quotes for taking my pension next year are not much different to the transfer value. As in If I take the 25% tax free lump sum that would be £22k with approx £270 a month pension.

How much would the pension be if you didn’t take the lump sum?

So if I choose to take my Pension in 1 year 8 months when I'm 65 £4,857.96/year with no lump sum or
 Pension Income

£3,545.04/year

Tax-free lump sum (max)

£23,633.03

Funded by your pension

If I choose to do it next year these are the figures;

A full pension

Pension income

£4,494.12/year

A reduced pension and a tax-free lump sum

Pension Income

£3,306.48/year

Tax-free lump sum (max)

£22,042.70

Funded by your pension


Mortgage rate at the moment is fixed till next May at 5.49% with First Direct with £45k left till I'm 69

Sarahspangles

I don’t know how to make the calculation but maybe someone else does?

I think your lump sum commutation rate is 1:18.5.

You are currently paying off a £45k mortgage at 5.49% and your lump sum would halve this. I wonder if this would imply that you also get a better rate, because your LTV is lower?

Taking your pension a bit earlier earlier means you lose £1,590 lump sum and £238.56 a year, but this may be offset by the savings on mortgage repayment over 6.5 years.

bjorn_toby_wilde

I was thinking the same thing. It’s a tricky choice because the commutation rate is ok, not great but not really bad either.

If you could get a better rate by paying off half of it in May then that might offset the loss as Sarah says.

katelina

Yes but the monthly mortgage for the remainder would still be £320 a month over 5 years (fixed for 2 yrs at 4% ) and I'll only have £275 a month Pension to pay it with. 
At the moment I'm paying £754 a month which with present best rate on a comparison site would bring my payments to £720. If I take the lump sum, use it over 3 years give me £612 a month plus the monthly pension of £275 a month = £897 a month. 
I don't understand Commutation rates......what is that?

Sarahspangles

katelina said:

I don't understand Commutation rates......what is that?

If you want to give up annual pension for a larger lump sum, your scheme does a calculation. Some schemes only give you £12 for each £1 of pension. So if you put your lump sum into savings (ignoring inflation and interest) you only need to live for 13 years and you’d have been better off not taking the lump sum.  Some schemes offer over £20 per £1 given up.

Of course you do need to factor in inflation and interest. If your pension is inflation proofed then taking cash and putting it in a savings account that doesn’t pay enough interest to keep up with inflation means you lose actual buying power.

In your case by paying off the mortgage, the lump sum reduces future interest payments which is a valid consideration.