DB Lump Sum or No Lump Sum

numptydumpty18

I am looking for people opinions on taking a DB lump sum or not.
I have always been in the camp of not taking the lump sum from a DB pensions as the inflation linked benefits outweigh the benefit of taking tax free cash, until faced with making the decision myself. I neither need the cash lump sum for anything specific nor will I be reliant on the extra income later in life. Our spending needs will be fully covered by other pensions and have a good amount in ISAs for tax free cash.
I am 56, I can take the pension now with no acturial reduction due to ill health (not life limiting), however with other income sources I will be a higher rate tax payer until 67, then drop to a standard rate tax payer. So 11 years as a higher rate tax payer. Living in Scotland.
The pension is RPI linked and spousal benefit is the same regardless of choice.

Option 1:

Lump sum £45783

Pension: £6867

Option 3:

Pension: £8600

Therefore: Giving up £1733/yr for £45783 lump sum, commutation ratio of 26.4.

Working this out on impact on take home pay:

Between 56 and 67 when 40% taxpayer and paying NI: Taking lower amount is a reduction of £972/year take home, which is £10692 over the 11 years.

After 67 when 20% tax payer and no NI: Taking lower amount is a reduction of £1368/year take home.

Assuming the £45k is invested to keep pace with inflation and working everything in today's value means: 11+((45783-10692)/1368)=36.6 years to break even if lump sum taken, which is when I am 92.

So opinions on taking the lump sum or not and why? What questions should I be asking myself to help make a decision? 

Phossy

Making choices is always harder when they impact personally!
Not helping you make the decision, but I would offer that taking the lower amount is only a reduction of £693/ year as you won't pay NI on the pension. This makes it even longer to 'break-even'!

Another thought, if you do not forsee needing the money either as a lump sum or as ongoing income, why not take the lump sum and invest it as a potential nest egg for use at some point in the future if needed. I expect the long term returns from an appropriate investment would be better than RPI (if it is capped).

Marcon

Already endless threads on this topic. Search the forum (little magnifying icon on the top right of the page will help you narrow down) and have a look at the various thoughts/factors to consider. Ditto googling - it's all been said before!

HillsideRetired

There is no right and wrong to this question
the answer to this depends on personal situations , firstly health situation ? .
will there be any debts going into retirement that a lump sum will sort out , do you want to buy a camper van and tour the big wide world ? 
do you prefer the higher guaranteed income from no lump sum with the assumption that its index linked . 
do you get a comfort feeling knowing you have a lump sum ?
do you anticipate spending to be higher in the first 15 years of a standard 30 year retirement ( for a 60 year old in good health  ) than the last 15 ( tapered ) 
so many questions that only you can answer . 
make you decision and enjoy the journey , as all facing this question you would have experienced more Christmases than you have left 

af1963

If you are confident that your income will be sufficient under either scenario, and that you have enough capital/savings in either scenario, the choice is less critical.

One factor may be that if you choose the lump sum, it's fairly easy to turn it into a regular income later if you needed to do that later ( via annuity or via drawdowns). It's less straightforward to convert a promised future income stream into a large lump sum if you found you needed one. ( Not impossible, but you'd need to persuade someone to lend to you based on your pension income, and then pay interest.)

It's a decent looking commutation ratio, much better than the 12:1 on some public sector schemes, but you're giving up the higher annual payments from an early age, so potentially more payments that you miss out on.

ukdw

Looking at it monthly after 42% tax £84 per month up to age 67 and then £115 - or nearly £46k lump sum.

I think I would take the lump sum at your commutation rate.

numptydumpty18

Thanks for the responses. @af1963 that's given me food for thought, i hadn't really thought about it that way.