FULL PENSION V LUMP SUM & REDUCED PENSION

MarlowMallard

With a 16:1 commutation factor and assuming you're a 20% taxpayer, it'll take 20 years to break even. If you retire at 57, that will be 77.

You're likely to live to your mid-80s, and you could be active until then. My parents are ~80 and are currently planning their next motorhome trip to Greece (they were camping in Spain and Portugal until a few weeks ago).

My parents' friends did loads of foreign travel including long-haul from ages 65 to early 70s.  However by 80 most of them were stretching it to do 300m from the town car park to the coffee shop, so I definitely would plan on doing your travel sooner rather than later. 

cfw1994

MarlowMallard said:

With a 16:1 commutation factor and assuming you're a 20% taxpayer, it'll take 20 years to break even. If you retire at 57, that will be 77.

You're likely to live to your mid-80s, and you could be active until then. My parents are ~80 and are currently planning their next motorhome trip to Greece (they were camping in Spain and Portugal until a few weeks ago).

My parents' friends did loads of foreign travel including long-haul from ages 65 to early 70s.  However by 80 most of them were stretching it to do 300m from the town car park to the coffee shop, so I definitely would plan on doing your travel sooner rather than later. 

I think the 80 year-olds still travelling a lot are perhaps in a minority, although that is still a good aspiration!

For my (small) DB scheme, it was available from 60, & I chose to take the minimum lump sum, but everyone is different.

Triumph13

"I'd like to think i'll be active then like your parents which is great to hear . Like most people I will be relying on State Pension to get by. We don't live extravagantly and should manage on 3k a month I reckon. No debts or mortgage either ."

That's good, because that's basically what you are going to have   Your two DBs, plus two SPs (I'm assuming you've checked you both get full SP?) comes out at £36k pa after tax.  The taxable 75% of you DC funds covers fills in the gap until your state pension.  The DB lump sum and the 25% DC TFLS fills the gap until your wife's, with about £20k left over.

Albermarle

mlhogg said:

Apologies for the choice of type - it's my first post.

The pension is inflation linked to CPI max capped at 5% with spouse getting 50% at death. I just found it surprising when modelling on Guiide we are able to achieve more income in the early retirement years to enjoy and not until my late seventies would there be breakeven. Seems almost a no brainer to take the PCLS and smaller pension in my case - guess I'm just trying to reassure myself .

If the reduced pension is enough to live on, and you can use the lump sum for enjoyable activities or moving home or whatever it can make sense.
If instead you save/invest the lump sum for later, it might well not produce the same income as you will be giving up, and the key point is that the pension you are giving up is guaranteed income. 

Notepad_Phil

mlhogg said:

... My wife who is 59 will also retire next year with an LGPS of approx 7K per annum. ...

Not to be too depressing, but in your shoes one of my prime considerations would be your wife's interest in looking after investments should you no longer be around. And although the 5% cpi limit is not the absolute best, I personally wouldn't consider the commutation rate as being so good that I'd take the lump sum over a guaranteed income that requires zero knowledge of investing for income.

crv1963

Notepad_Phil said:

mlhogg said:

... My wife who is 59 will also retire next year with an LGPS of approx 7K per annum. ...

Not to be too depressing, but in your shoes one of my prime considerations would be your wife's interest in looking after investments should you no longer be around. And although the 5% cpi limit is not the absolute best, I personally wouldn't consider the commutation rate as being so good that I'd take the lump sum over a guaranteed income that requires zero knowledge of investing for income.

I'm with Notepad Phil on this one! Your wife may have an interest in or knowledge of how to manage investment if so my apologies.

My wife has zero interest pensions/ investment other than the bottom line of how much and when and for how long. Therefore I have tailored her DC pots and am merging them into one pot. From this pot she will retire next year age 59 years and draw down annually up to her tax allowance, the 25% tax free lump sum we are going to complete home improvements and she will retain the balance in a combination of cash and ISA (S&S).

Once she hits SPA then she will stop drawdown. We will rely on my DB Pension income, for our expenditure and if I should kick the bucket before she reaches SPA then the survivors pension and drawdown will cover her needs.