Using part of DB lump sum (SAUL pension) to buy an annuity. Any good reason to do this?

katejo

squirrelpie said:

You mentioned a 'financial advisor'. Was this an Independent financial adviser or not? Does this adviser by any chance sell annuities? My instinct would be to ignore the idea of an annuity and to take the pension as you originally planned.

No he isn't independent and that is my instinct too re. the annuity. To be fair to him, he hasn't been pushy at any time. Thanks 

katejo

daveyjp said:

A DB pension is in essence an annuity.  You are paid a guaranteed amount per year for life.

If you don't want a lump sum ask SAUL for a quote without one and see how much your annual pension increases.  You can the  compare it with an annuity on similar terms to the DB pension (if you can find one as I suspect it is generous).

I do want to take a lump sum and treat myself to one or two special holidays while still healthy but just think I want to reduce it slightly. 

hyubh

katejo said:

I am already aware that the commutation factor for the DB lump sum tends to be poor.

That's in respect of the fixed 12/1 factor for most public service/statutory schemes. Most trust-based schemes use rates intended to be actuarially neutral - and SAUL is a trust based scheme. I believe SAUL also have a 'reverse commutation' option for the automatic lump sum accrued. I would be surprised if a third party annuity would beat that, but you never know.

katejo

hyubh said:

katejo said:

I am already aware that the commutation factor for the DB lump sum tends to be poor.

That's in respect of the fixed 12/1 factor for most public service/statutory schemes. Most trust-based schemes use rates intended to be actuarially neutral - and SAUL is a trust based scheme. I believe SAUL also have a 'reverse commutation' option for the automatic lump sum accrued. I would be surprised if a third party annuity would beat that, but you never know.

What exactly is 'reverse commutation' please? I haven't heard that term. I have just googled it and can see that the USS pension scheme allows it but haven't seen it for SAUL (which is less flexible in that I can't start claiming my pension until I am actually retired).

Barralad77

Reverse commutation is where you give up some of your (e.g.,) tax free lump sum cash to secure more in annuity (and commutation is where you give up some of your annuity to get more cash). For example, if your annuity was £20,000 and it came with a £50,000 TFLS you could - via reverse commutation - reduce your TFLS to, say, £30,000 and increase your annuity to £21,000 (wholly made up numbers, but hopefully you get the idea).

katejo

hyubh said:

katejo said:

I am already aware that the commutation factor for the DB lump sum tends to be poor.

That's in respect of the fixed 12/1 factor for most public service/statutory schemes. Most trust-based schemes use rates intended to be actuarially neutral - and SAUL is a trust based scheme. I believe SAUL also have a 'reverse commutation' option for the automatic lump sum accrued. I would be surprised if a third party annuity would beat that, but you never know.

I contacted a SAUL benefits advisor today and she told me that SAUL does not allow this reverse commutation' option.

hyubh

katejo said:

hyubh said:

katejo said:

I am already aware that the commutation factor for the DB lump sum tends to be poor.

That's in respect of the fixed 12/1 factor for most public service/statutory schemes. Most trust-based schemes use rates intended to be actuarially neutral - and SAUL is a trust based scheme. I believe SAUL also have a 'reverse commutation' option for the automatic lump sum accrued. I would be surprised if a third party annuity would beat that, but you never know.

I contacted a SAUL benefits advisor today and she told me that SAUL does not allow this reverse commutation' option.

OK, the info on the website is vague (my emphasis):

When you choose to retire you’ll have three main options:

• A basic income and a one-off tax-free lump sum of three times your income
• Income and no lump sum – your income will be bigger because we’re not paying you a one-off tax-free lump sum
• A bigger lump sum and a smaller income – we’ll tell you the maximum one-off lump sum you can get from SAUL, based on HM Revenue and Customs rules – and how much we’ll reduce your income if you take this option. 

https://www.saul.org.uk/what-will-i-get-from-saul

katejo

hyubh said:

katejo said:

hyubh said:

katejo said:

I am already aware that the commutation factor for the DB lump sum tends to be poor.

That's in respect of the fixed 12/1 factor for most public service/statutory schemes. Most trust-based schemes use rates intended to be actuarially neutral - and SAUL is a trust based scheme. I believe SAUL also have a 'reverse commutation' option for the automatic lump sum accrued. I would be surprised if a third party annuity would beat that, but you never know.

I contacted a SAUL benefits advisor today and she told me that SAUL does not allow this reverse commutation' option.

OK, the info on the website is vague (my emphasis):

When you choose to retire you’ll have three main options:

• A basic income and a one-off tax-free lump sum of three times your income
• Income and no lump sum – your income will be bigger because we’re not paying you a one-off tax-free lump sum
• A bigger lump sum and a smaller income – we’ll tell you the maximum one-off lump sum you can get from SAUL, based on HM Revenue and Customs rules – and how much we’ll reduce your income if you take this option. 

https://www.saul.org.uk/what-will-i-get-from-saul

Yes I have read this. The term ' reverse commutation' (which the SAUL person seemed not to be familiar with) suggests that someone could decide on the size of their lump sum and then change their mind and revert it back to a regular pension income. That's what I initially thought it meant. 

Albermarle

With all DB pensions, once the lump sum is decided and the pension commences, there is no going back.

dunstonh

squirrelpie said:

You mentioned a 'financial advisor'. Was this an Independent financial adviser or not? Does this adviser by any chance sell annuities? My instinct would be to ignore the idea of an annuity and to take the pension as you originally planned.

a year ago, or more, you wouldn't consider using the PCLS for a PLA as the scheme pension would be the most obvious option unless it had a really dire commutation factor.    However, at current annuity rates, and the fact that the PLA would be partially taxable whereas the scheme pension is fully taxable, it could be possible for the PLA to beat the scheme pension.

We are in a strange window of falling interest rates but rising annuity rates which are at near 20 year highs.  So, it may just be one of those short term windows where something unusual may actually work.