DB lump sum question

GunJack

Yup, you pay 2880 a year in, the sipp provider claims tax relief of 720 for a total of 3600 in p.a. and when you want to take it, you can if you wish take a 25% tfls from it, and you can do that up to age 75.

ali_bear

https://forums.moneysavingexpert.com/discussion/6656612/db-lump-sum-question

How long have you got before you start receiving the state pension?

Work out what your fixed living costs are and calculate how much DB pension plus the state pension you would need to cover these costs, don't forget to allow for income tax. If there is a surplus you will know the maximum you could afford to take as PCLS.

Then consider how much extra will be needed to fill the income gap to state pension age.

Cobbler_tone

https://forums.moneysavingexpert.com/discussion/6656612/db-lump-sum-question

It's an impossible question to fully answer.

The general 'vibe' on here is usually not to take the lump sum (unless you have a specific need) but everyone has different needs and wants. The beauty is that it is no-one else's decision. Clearly to take a lump sum and create exposure to an wholly insufficient guaranteed income would be flying by the seat of you pants.

I will take around 50% of my available DB lump sum. Firstly because I want the capital as a safety net and don't have the six figure ISAs some have. Plus I have a DC to drawdown over 5-6 years tax efficiently. I am happy with a set income of £32k gross for life, that will increase according to the rules (including the state pension taking over when my DB dips at 67 - plus my wife's pensions) and a couple of hundred thousand of capital to play around with. I appreciate that some might want a higher guaranteed income and lower capital but it is all down to choice. £90k of mine will be gone in month 1 on a car and gifting.

YOLO.

dunstonh

 A financial advisor tried to suggest a larger lump sum and buy an annuity with it but I don't see any advantage over the DB pension increments. He isn't independent

The annuity can be beneficial over the scheme pension but it would depend on circumstances. Mainly death benefits and the terms (mainly if enhanced enough to beat the scheme pension).

You certainly wouldnt take the lump sum and then check if an annuity is best. You would check before making the decision.

Statistically, the annuity would be less than the scheme pension in most cases.

katejo

https://forums.moneysavingexpert.com/discussion/comment/81897089#Comment_81897089

I have already done that in effect by monitoring all my spending and saving for over 10 years. I have also been living in reduced income for quite a while due to reducing my work hours. I have other savings from an inheritance which are invested.

Andy_L

What's the commutation rate in SAUL? ie the amount of lump sum gained for each £1 of pension given up?

Is it the punishing 12:1 rate typical in the public sector or or a fair rate?

katejo

https://forums.moneysavingexpert.com/discussion/comment/81897264#Comment_81897264

Not sure yet. I am waiting for my final pension offer/statement with the question about how much I want as a lump sum.

Moonwolf

I think you are taking a sensible approach already.

In general, unless it is a high commutation rate you will have more money if you keep the income. However it is never as simple as that.

You need to double check that your reduced pension plus state pension will be enough to meet your needs but I’m guessing you have done that.

You might even want to check that you aren’t at risk of paying higher rate tax, given the freeze in personal allowances means that an inflation linked pension plus state pension worth between around £44k and £48k today (depending on inflation) could make someone a higher rate tax payer in a few years time. If you are in this situation, taking a bigger lump sum and putting it in an ISA to spend as needed might work out better.

If you have enough money anyway, then the cash might buy bigger and better holidays in the early years or a better car or whatever your luxury might be. We have taken a couple of river cruises which are expensive but they suit us for a number of reasons. We are a married couple but on both occasions we ended up with singles in our cors social group on the boat.

katejo

https://forums.moneysavingexpert.com/discussion/comment/81897909#Comment_81897909

I won't be a higher rate tax payer and already have a full ISA. I do want to splash out a bit on holidays which I couldn't afford from monthly salary. I did a short taster river cruise last year and will probably try another. Also looking at trips further afield with companies like Explore. I have already done many of their European trips. I think I will take about half the offered lump sum.

katejo

https://forums.moneysavingexpert.com/discussion/comment/81897264#Comment_81897264

https://forums.moneysavingexpert.com/discussion/comment/81897909#Comment_81897909

I contacted SAUL and asked whether my final pension quote would include a commutation rate and was told no it wouldn't. I have since received my final pension quote and was able to work out the commutation rate from the figures given. It was 18:1 . I replied to SAUL with my own approximate annual pension income calculation for 3 different slightly reduced lump sums and they replied to say that my calculation was correct. I am now deciding which one to go for. The figures considered are between 36% and 46% of the original lump sum offered.

I also asked the SAUL technician how common it was for clients to raise or reduce the lump sum offered. I have now been told that it isn't common at all which surprises me somewhat.