NHS pension lump sum dilemma

Bobinyorkshire

Got an estimate of £37K and lump sum of £110k or £29.5K and £195k lump sum approx.

But which one is best?

£37k with some added part time work (for a short while post retirement) takes me into higher tax bracket and even after finishing work with cpi increase and SP will do the same in 7 years.

£30k means some tax to pay on interest of larger lump sum if not spent, but significant drop in longer term income due to less compounding by cpi, but unlikely to go into higher tax bracket with either work or ultimately addition of SP

No mortgage or debts. Married with 3 independent adult children

Wife has NHS pension in payment already

Helpful comments welcome

Marcon

It's not a dilemma; it's a choice. Don't let the tax tail wag the dog - focus on your long term income needs.

Nebulous2

It's a bet on how long you will live.

I had an unusual situation with my public sector pension where I didn't have an automatic lump sum, so I chose not to take one at all. I wanted the reassurance of that monthly sum dropping into my bank account, as it had done for my 40+ years of working life.

I have a relative in her 90s who has been drawing an NHS pension for over 30 years. Any lump sum is nothing but a distant memory for her.

The 12:1 commutation rate is generally seen as poor, but you have the tax issues to negotiate. You also need to remember that the tax landscape could be very different in 7 years.

Unless you have a very expensive lifestyle I'd say either way you are going to be okay.

So in the words of Clint Eastwood: "Do you feel lucky?"

dunstonh

But which one is best?

The one that best meets your objectives and needs both now and in the future. So it will depend on your scenario, and there is not a fixed answer that suits everyone.

Bobinyorkshire

Thank you. Love the Dirty Harry quote 😂

poseidon1

As @Marcon repeatedly points out to those who continually ask the same question, look beyond the fact of paying 40% tax in retirement and focus on the security of what a high inflation linked post tax income can do for you and your family.

In the following thread I related the outcome ( 10 years on) of precisely the same decision making process conducted for 1 one of my relatives, and the very comfortably financial position he now enjoys as a result of forgoing £100k of his TFC -

https://forums.moneysavingexpert.com/discussion/comment/82023514#Comment_82023514

LHW99

How does either match with what you're likely to need in retirement? Do you have a large mortgage to pay off or might you need to buy / move house? What is your other savings / investments position?

Cobbler_tone

£85k extra (that you don't need by the sound of it) for giving up £7.5k a year pension. See if you can buy a lifetime annuity with £85k for £7.5k a year, with whatever protections you have.

As above, depends on your scenario but that is 'selling' a lot of pension for a limited amount and no apparent personal advantage of doing so.

Bobinyorkshire

All these comments have helped me decide to go for the larger annual pension and lower lump sum and to accept the tax implications.

Thank you again. I have been wrestling with this question, but I am filling the AW8 this week so needed to decide

QrizB

… and to accept the tax implications.

And do remember that, at some point, the tax bands will change. Hopefully upwards but that's not guaranteed.

And that'll upset everyone's prior calculations.

Eldi_Dos

If you are happy and comfortable living on the smaller pension, the extra amount of lump sum could be invested for any future grandchildren.