DB Lump Sum - Future Planning

Silvertabby

https://forums.moneysavingexpert.com/discussion/comment/81975743#Comment_81975743

Approx 90% of LGPS pensioners take the maximum commutation, despite the p.poor rate of 1:12, and I believe the other public sector schemes have similar stats.

A good thing for the tax payers, though. If the majority of public sector pensioners took the maximum index linked pension, the scheme costs would be substantially higher.

QrizB

My pension is with a private company. The commutation factor is 17.5.

Ok, so you give up £1k of pension for ££17.5k of cash.

Ignoring inflation etc.and assuming you retire at 57, then for the first 10 years that £1k pa will be £800 per year - a total of £8k.

After that, it's only worth £600 pa. You'd need to live another 16 years (until you're 83) to receive more than £17.5k in total. And, as stated above, average male life expectancy at 57 is around that age.

So, in your particular case it seems a commutation rate of 17.5 is pretty fair. It doesn't make a huge amount of difference whether you commute some pension or not.

If the commutation rate was 12, like public pensions use, commuting would leave you worse off sooner. If it was 20+ like in some private DB schemes, commuting would be more favourable.

Cobbler_tone

Regardless of the sums, life can't be summed up on a spreadsheet. From my lived experience, people seem to generally accumulate more money than they need as they get older. I have never heard anyone say "I wish I'd retired later" and the years you can can access when you have the health, energy and inclination to enjoy things are priceless. The 'one more year' dilemma seems to be a area that many struggle with. I have found it best to pick a plan and stick to it, although it does present a wide range of emotions. Some people's plans are to work until they drop….and that is fine too. I work with plenty of people who are 60+ who could comfortably retire but working until state pension age. It just seems the default for many.

Only you know income you realistically need to secure in order to be comfortable.

cloud_dog

When I did my final (final) round of questioning and calculating taking the PCLS or not, I used the net monetary value for my calculations (rightly or wrongly).

So using the above data, giving up £800 of annual income (£1k minus 20% tax) yields £17.5k giving 21.87.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81975920#Comment_81975920

 From my lived experience, people seem to generally accumulate more money than they need as they get older. 

That is probably a result of generally mixing with similar people to yourself, or being a member of a forum like this. There are many Millions of people who will not be in that position.

LHW99

One aspect that does occur to me is have you worked out what is lost when the first one passes, and does that leave enough for the survivor to live on?

For example, if you take the DB pension early, would that affect the spouse's pension (is there one, at what level)?

Does your wife have her own provision? You could give her £2880 every year up to age 75 to add to a SIPP / PP of her own to add to her pension position (and could do the same yourself).

SP is no longer inheritable (apart from 50% of any protected payment) - does that affect your plans?

While you mention your wife is a little older, women also tend to live longer than men, so ensuring provision for both of you separately is worth a check.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/81975970#Comment_81975970

agree on this. However its a two factor thing. Assuming you’re planning on retirement at a particular date, and thats a mix of DB and DC

if you take the DB reduced, the DC need will be lower in the initial SORR phase especially. If you take the DB later, you get a higher spousal pension assuming it has one, but you may pass on less DC if you die as you’ve had higher drawdown early.

Also if the spousal pension is 50% for example, the reduction by taking early is also effectively halved. Eg you get 20k at 65, spousal pension 10k. If that reduces to 10k by taking it at 55, the spousal portion is 5k - its still halved, but the reduction is half of your original reduction (your pension reduced by 10k but the spousal protection only reduced by 5k)

I’d model both to see how it looks though. And I’d consider a third option of waiting until later to take the DB, but commutating some cash which can reduce DC drawdown after that point or be used for other things - the spousal protection is often unaffected by that

don’t suppose there is a handy formula for working those three out..?

NoMore

https://forums.moneysavingexpert.com/discussion/comment/81976105#Comment_81976105

Most (all ?) DB pensions don't reduce the spousal pension by early retirement factors if the original pension is taken early, its still based on the full pension accrued.

Albermarle

Also if the spousal pension is 50% for example, the reduction by taking early is also effectively halved. Eg you get 20k at 65, spousal pension 10k. If that reduces to 10k by taking it at 55, the spousal portion is 5k - its still halved, but the reduction is half of your original reduction (your pension reduced by 10k but the spousal protection only reduced by 5k)

Have you read the details of your scheme rules, as to how taking the pension early and/or taking a lump sum, would affect the Spousal pension?

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/81976141#Comment_81976141

mine does. I thought that was common. taking tax free cash doesn’t but taking early does.