Full pension/lump sum & reduction

RobDiss

Hi, turning 60 this year. Final salary pension from a previous employment is payable:-
Full pension = £11,151 pa
Reduced pension = £8557 pa with a lump sum of £57,052

Looking at it simply (not including growth/inflation/tax) difference is £2593 p.a

£57,052 divided by £2593 = 22

Therefore, I would be 82 before taking the full pension would have been the better option.

I know there are many other factors to consider, however, any constructive comments would be appreciated.

I plan to continue full time work, pay tax at 40%, mortgage and debt free, have other DC pensions.

Many thanks

Dazed_and_C0nfused

RobDiss said:

Hi, turning 60 this year. Final salary pension from a previous employment is payable:-
Full pension = £11,151 pa
Reduced pension = £8557 pa with a lump sum of £57,052

Looking at it simply (not including growth/inflation/tax) difference is £2593 p.a

£57,052 divided by £2593 = 22

Therefore, I would be 82 before taking the full pension would have been the better option.

I know there are many other factors to consider, however, any constructive comments would be appreciated.

I plan to continue full time work, pay tax at 40%, mortgage and debt free, have other DC pensions.

Many thanks

Is there no automatic lump sum with the £11,151?

What are the inflation protection rules for this scheme?  

Do you expect to pay 40% for the foreseeable future?  If so you are really only giving away £1,556/year (ignoring inflation).

Marcon

RobDiss said:

Hi, turning 60 this year. Final salary pension from a previous employment is payable:-
Full pension = £11,151 pa
Reduced pension = £8557 pa with a lump sum of £57,052

Looking at it simply (not including growth/inflation/tax) difference is £2593 p.a

£57,052 divided by £2593 = 22

Therefore, I would be 82 before taking the full pension would have been the better option.

I know there are many other factors to consider, however, any constructive comments would be appreciated.

I plan to continue full time work, pay tax at 40%, mortgage and debt free, have other DC pensions.

Many thanks

This question crops up the whole time on this forum. If you use the search box at the top right of your screen (the usual little magnifying glass icon):



and enter the words full pension or lump sum, you'll get masses of answers which will be relevant to your question. 

Phossy

£57,052 divided by £2593 = 22

Therefore, I would be 82 before taking the full pension would have been the better option.

That is true if that is your only income / you are not paying any income tax. If, for for example, you are paying 20% income tax then the calculation becomes 22 years/ 0.8 = 27.5 years (or 36.7 years if a 40% tax payer). 

Brie

Just mentioned on a similar thread - you don't HAVE to take the pension now.  You could wait until you have less income and therefore not lose as much to income tax.

Marcon

Brie said:

Just mentioned on a similar thread - you don't HAVE to take the pension now.  You could wait until you have less income and therefore not lose as much to income tax.

If there's no late retirement factor, OP would lose out by not taking it at the scheme's normal retirement age. Tax isn't the only consideration...

bjorn_toby_wilde

Inflation rises in payment are also an important factor as Dazed and Confused has said.

If the whole pension rises by RPI capped at 5% for example then that would be a whole different ball game to rises on only part of the pension capped at say 2.5%. The latter would make the lump sum more attractive.