Commutation factors and planning

what_hump

Hi. My wife is taking early retirement within the next few months, aged 59. I have been retired for for a few years, aged 65. I am taking ad hoc lump sums from a SIPP which is invested 70% global index 30% bonds currently valued at ~550k. At the moment I am taking up to the 40% tax limit and depositing 20k into an ISA with similar fund. My state pension kicks in soon. My wife has 2 small DB pensions 3K and 6k per annum with TFLS 0f 9.5k and 19k. We could increase the TFLSs with a commutation rate of around 18.
She also has an old DB scheme which is due to pay 13.5k per annum with no TFLS or 10k with 67k TFLS
Sometime over the next 12 months she will inherit approx 300k.
Over the next few years we want to travel and plough some money into home improvements but we will still have excess cash outside of ISAs.
We are inclined to not take excess TFLS from the small ISAs with the commutation rate of 18 and to take all or some TFLS from the bigger pension with slightly more favourable commutation rate.
We have 3 children, which we would like to help out somewhat over the next few years and hopefully fall outside the 7 years tax issue!
Basically, with sufficient cash to meet out needs for the near future, does it still make sense to take the 67k TFLS from the larger pension with the commutation rate of 20 or would it be better to secure guaranteed income? My wife has good genes, but me - not so much, so I'm counting on one of us to live to a ripe old age, but who knows?
Thanks. 

Marcon

what_hump said:

Hi. My wife is taking early retirement within the next few months, aged 59. I have been retired for for a few years, aged 65. I am taking ad hoc lump sums from a SIPP which is invested 70% global index 30% bonds currently valued at ~550k. At the moment I am taking up to the 40% tax limit and depositing 20k into an ISA with similar fund. My state pension kicks in soon. My wife has 2 small DB pensions 3K and 6k per annum with TFLS 0f 9.5k and 19k. We could increase the TFLSs with a commutation rate of around 18.
She also has an old DB scheme which is due to pay 13.5k per annum with no TFLS or 10k with 67k TFLS
Sometime over the next 12 months she will inherit approx 300k.
Over the next few years we want to travel and plough some money into home improvements but we will still have excess cash outside of ISAs.
We are inclined to not take excess TFLS from the small ISAs with the commutation rate of 18 and to take all or some TFLS from the bigger pension with slightly more favourable commutation rate.
We have 3 children, which we would like to help out somewhat over the next few years and hopefully fall outside the 7 years tax issue!
Basically, with sufficient cash to meet out needs for the near future, does it still make sense to take the 67k TFLS from the larger pension with the commutation rate of 20 or would it be better to secure guaranteed income? My wife has good genes, but me - not so much, so I'm counting on one of us to live to a ripe old age, but who knows?
Thanks. 

What's your objective and what's your attitude to risk? There's a balance to be struck between the two, which is why there is rarely a nice simple answer to these 'what would you do' type of questions.

In particular, what would you do with the £67K if your wife took it as a lump sum - do you have somewhere to invest it where it will definitely 'do better' than taking more of the DB pension as actual pension?

As for commutation rates - how does the pension increase once in payment/what's the Normal Retirement Age for each of the schemes? Are the commutation rates age related? These usually have a significant impact on the headline rate, which is why simply looking at the commutation rate in isolation isn't sufficient to tell the whole story.