EVR local government, what option to take and what to do with it?

gingapete

Nebulous2 said:

It's an individual decision, and one that is largely a gamble on how long you will live, but also depends on how much risk you would take with the lump sum. 

What would be your target income to lead the lifestyle you want in retirement?

I had unusual circumstances for my LGPS, which meant I didn't have an automatic lump sum. I had been a wage slave for 40 years and there was a certain comfort to that monthly payment dropping in my bank account every month. So I didn't take a lump sum at all. As we've had a couple of chunky CPI rises since I retired I have no regrets at all. 

Once I reach state pension age I'll have enough guaranteed income from my LGPS and my state pension to live on, in fact it is likely that I will not need to spend it all. That feels quite secure. 

@Nebulous2, thanks for replying

I've been working just over 40 years but only got 30 in on LGPS, mine does not come to my monthly amount working, i wish it did though

Kernowshep

gingapete said:

Kernowshep said:

I'd be firmly in the larger annual pension camp (and leave the mortgage as long as possible before paying it off).

Redundancy with non reduced index linked pension starting 10 years before SPA is the dream ticket - and will cost the pension fund an absolute fortune.

@Kernowshep thanks for replying

I have not a clue what this means "Redundancy with non reduced index linked pension starting 10 years before SPA is the dream ticket - and will cost the pension fund an absolute fortune." but if it means its good for me, then I'm up for that!! 🤣

Basically if you started your pension at 58 without being made redundant it would be reduced by about a third (because it will be paid for longer).
If made redundant it isn't reduced (and you get the severance).

Very rough calculations with your figures for the minimum lump sum option, mean you would get an extra £6k p.a. (£18k vs £12k) every year because of this (30 years of that to 88 is £180k + more value for the inflation & dependants benefits etc., and the £25k severance).

https://www.lgpsmember.org/your-pension/planning/taking-your-pension/

gingapete

Kernowshep said:

gingapete said:

Kernowshep said:

I'd be firmly in the larger annual pension camp (and leave the mortgage as long as possible before paying it off).

Redundancy with non reduced index linked pension starting 10 years before SPA is the dream ticket - and will cost the pension fund an absolute fortune.

@Kernowshep thanks for replying

I have not a clue what this means "Redundancy with non reduced index linked pension starting 10 years before SPA is the dream ticket - and will cost the pension fund an absolute fortune." but if it means its good for me, then I'm up for that!! 🤣

Basically if you started your pension at 58 without being made redundant it would be reduced by about a third (because it will be paid for longer).
If made redundant it isn't reduced (and you get the severance).

Very rough calculations with your figures for the minimum lump sum option, mean you would get an extra £6k p.a. (£18k vs £12k) every year because of this (30 years of that to 88 is £180k + more value for the inflation & dependants benefits etc., and the £25k severance).

https://www.lgpsmember.org/your-pension/planning/taking-your-pension/

Hi, yeah i would only be taking the LGPS via EVR and covered with the 85 year rule, so im sure that means i dont pay any penalties. cheers

kempiejon

I'd generally prefer the larger guaranteed lump sum but I could make use of £85 too. I've been running some tax calculations for myself regarding pensions, lump sums and timings on DB, DC and SP.
Here's some thoughts for the group.

Assuming no other income, all pension and interest income is spent and lump sum on deposit for ever.
If you start that £18k per year pension at 58 you'll be paying tax on £6k take home a sniff below £17,000 and it'll use up a chunk of the starting rate for savings.
If you take £12k you won't have any income tax to pay and the lump sum £85k can be stuck into a savings account and at up to 5.5% interest should keep below the savings allowances. £85k @ 4% £3,400 interest all tax free.

Come state pensions if rules are similar to today and you'll pay tax on the pension and savings at prevail rates
with £18k take home £14.400
with £12k take home £9600 plus £1k savings tax free, £1900 net total = £12,500 and you have £85k in the bank.

in 10 years you've had £170,000 nett from the £18k or from £12k you have the lump sum, £85,000+ 10 years of £12000 and 10 years of interest £34000
Hmm, have I got that right? Ah that's right I'm missing inflation on the annual pay outs.

gingapete

kempiejon said:

I'd generally prefer the larger guaranteed lump sum but I could make use of £85 too. I've been running some tax calculations for myself regarding pensions, lump sums and timings on DB, DC and SP.
Here's some thoughts for the group.

Assuming no other income, all pension and interest income is spent and lump sum on deposit for ever.
If you start that £18k per year pension at 58 you'll be paying tax on £6k take home a sniff below £17,000 and it'll use up a chunk of the starting rate for savings.
If you take £12k you won't have any income tax to pay and the lump sum £85k can be stuck into a savings account and at up to 5.5% interest should keep below the savings allowances. £85k @ 4% £3,400 interest all tax free.

Come state pensions if rules are similar to today and you'll pay tax on the pension and savings at prevail rates
with £18k take home £14.400
with £12k take home £9600 plus £1k savings tax free, £1900 net total = £12,500 and you have £85k in the bank.

in 10 years you've had £170,000 nett from the £18k or from £12k you have the lump sum, £85,000+ 10 years of £12000 and 10 years of interest £34000
Hmm, have I got that right? Ah that's right I'm missing inflation on the annual pay outs.

Hi @kempiejon, thank you for your reply!

Wow, that's a fantastic explanation and looks like the way I'm thinking of going now less pension, larger lump sum and drop it into high interest account and or ISA.

kempiejon

gingapete said:

Hi @kempiejon, thank you for your reply!

Wow, that's a fantastic explanation and looks like the way I'm thinking of going now less pension, larger lump sum and drop it into high interest account and or ISA.

@gingapeteStating the bleeding obvious but don't trust my workings nor assumptions. index linked larger income for life and something for a survivor has legs.

Kernowshep

I guess the main question is what annual amount do you think you'll need to live on and how to make that work.

Following on from the posts above I think the £15k lump sum (plus £7k of interest) is missing from the £18k option calculations above. Also the compound interest at 4% on the £85k makes it nearer £46k after 10 years. But obviously if you pay off the mortgage with it, when you do that, it changes the numbers. As would using it to supplement income.

Taking the larger lump sum may be the best option for you but please make sure you factor in the inflation linked increases of the pension, and that it's not just for 10 years, it could be another 10, 20 or 30 years on top of that.
For example the £6k p.a. difference would be up to about £8.1k with 10 years of 3% inflation each year, £10.8k after 20 years, £14.6k after 30 years, and £19.6k after 40 years (to pretty much £40k vs £60k). You'll obviously be taxed on that difference so the take home difference would be less.

I'd stick the options in a spreadsheet to show it better (including the impact of tax on income, inflation, interest on savings, mortgage cost). If I had to guess the cross over point is probably late 70s early 80s (but the reality would depend on tax, interest rates and inflation).

Caveat - my calculations and assumptions may also be incorrect.