DB Pension take lump sum or not?

MarlowMallard

Looks like a commutation ratio of 20.4 which is pretty good in favour of the lump sum. A couple of points: if you compare sticking the £60k in an ISA, vs sticking the extra pension in an ISA every year, and it just keeps up with inflation, you get 7 years at £3k, then £2.4k after tax, so it actually takes about 23 years for the extra pension to get ahead.

Basically, consider what happens if you live to 90ish: if you're worried about being skint then I'd take the extra pension. If you'd be "managing" with the lesser pension then I'd take the lump sum, blow half of it on fancy holidays/fun stuff in your 60s and save the rest for new roof/boiler/car etc. If you die before 80 you have "won" by taking the lump. If you live to 90 you have lost by taking the lump, but you have won by living to 90 so who cares.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82037025#Comment_82037025

It is nothing special but it is better than some, so it is OK.

Most people take the lump sum even when the commutation rate is worse than that. Not because it is a rational financial decision, but they just see the Pound notes in their eyes. Also 'a bird in the hand is worth two in the bush' type thinking.

Littleowl007

Thankyou for all your comments and advice.Im thinking because know one knows what's round the corner that taking some cash lump sum might be a good option.Maybe a smaller lump sum with a slightly better pension might be an idea.

mrklaw

also consider if taking the lump sum reduces spousal pension on death. Some do (mine) some don’t.

Littleowl007

Yes have considered and it doesnt reduce with death.

kermchem

The views here might be influenced by the fact that is a money saving forum.
I see frequent post from first time posters asking how they can get all the cash out of their pension. DB or DC doesn’t seem to matter. Just because you can access your pension at 57 doesn’t mean you should.
OH has a work colleague in receipt of Army and Police pensions, now adding to civil service Alpha. His frequent advice to anyone who will listen is to take the maximum lump sum. I have to battle to persuade OH just how wrong this is for Classic or Alpha.
With the decline of DB and growth of DC I do hope someone is going to be giving professional, correct and cheap advice in 20 years to people with small DC pots.

RogerPensionGuy

https://forums.moneysavingexpert.com/discussion/comment/82037301#Comment_82037301

This post is close to my previous situation, I was offered a commutation rate of X 26 in early 2024, no effect on spouce pension, so I took maximum TFLS, the DB pension is limited to 5% maximum inflation rises.

I used the TFLS Wisley & allowed me to just lately use a DC SIPP to buy a good happy deal annuity as annuity rates have gone up.

Think I was certainly more lucky than skillful in my DB and DC SIPP planning, inputs, groath and then annuity rates rolling up currently suiting my personal position.

I feel it a bit like to sequence risks against age, people can be lucky or unlucky, I've just been going over my numbers and sequences and still can't believe how it panned out.

However I did a bit of planning guessing about the LTA and TFLS possibilities and interest rates to a degree, friends told me I was silly planning for possible futures and should only plan for the rules on the day.

Cheers Roger.

katejo

I have recently taken my DB pension at 63. I had no debts to clear and already had the max amount in my ISA for the current year. I reduced the lump sum offered by about 50% to increase my annual pension income. I hope to spend some of it on travel.

NormalNorman

I take it you have mapped out your income vs expected expenditure over retirement so if taking a lump sum do you still have sufficient income to be comfortable?

Do you have an emergency fund? Any big ticket items and home improvements on the horizon or have you already ticked some of those off? Do you plan on any giving with warm hands? Any bucket list items to tick off? Any debt/mortgage to clear? Tax band considerations?

I'm not expecting you to answer here just thoughts to help your decisions.

Littleowl007

No debts no mortgage,have good amount of savings,emergency fund etc.Thinking of taking 50% of lump sum so pension drops by £1200pa. There maybe something big happening on the horizon also a worry if there were health issues would we be regretting not taking any TFLS ? It's a big decision so would to get it right if we can.Thankyou again for all your help much appreciated.