DB Pension take lump sum or not?

Cobbler_tone

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

I did once think that the spousal element was never impacted by the lump sum but have since read numerous examples of this happening. I guess you are more familiar with what you know, i.e your own scheme, so count myself lucky that mine doesn't. It is why it is vital that everyone checks their own scheme rules as opposed to generic advice.

Littleowl007

Thanks will be checking it thoroughly today.

Phossy

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

I don't look at commutation rates as good or bad (it's an oversimplification) - it's more about putting it into your own financial context.

Let's assume you took the full lump sum of £61,560. The commutation rate is 20.38. If you pay 20% on the pensionable sum then you are looking at a breakeven age of 85.5 (60 + 20.38/0.8). If you pay 40% tax then that age increases to 94 - this assumes that you put the lump sum in a place that matches the annual increase you would get on your pension. If your pension is capped at 2% then I'm sure would be able to beat that.

Another way to look at it is to use that lump sum as a bridge for the 7 years to state pension, so in effect a 7 year boost to your income of £8,794/ year until you get your state pension, which will supplant that income (plus some more) - you have effectively smoothed out your income from 60 onwards, but with the added bonus of having funds available right now if needed.

If you choose to take the larger pension then you you will have a larger income from age 67 onwards.

It depends on what you earn now, what you spend now and what you would like to do.

For my circumstances, I am prioritising having more money in the short term and less in the longer term as I believe that matches my needs.

Littleowl007

Never thought of it like that,take the max lump sum and top up the reduced pension of £9250 not £8794 to £12270 pa about 3k Pa.

Phossy

Apologies if I wasn't clear I meant for seven years you would get the reduced pension (9250 taxable) plus in effect £8794 (61560/7 tax free). Then you would keep the 9250/ yr plus state pension of 12500 (taxable). You can cut it many ways though.

Littleowl007

No problems,at the moment my wife is not working so the £9250 would be within the personal allowance.Considering taking just 50% of the lump and smaller pension it works out about £120.00 a month less.I know taking the full pension with no lump sum the pension will grow a lot faster and be more in the long run .We are all different I know wish choices were easier 😀

zagubov

Main reasons why people consider maximising lump sums are

: Not sure how long their health will last so want to spend on travel etc. while they're alive and healthy enough to do it.

Have debts to pay or expenses to improve their quality of life

Want to pass on an inheritance to their offspring

They're stock-and-shares savvy or their financial advisor is so they aim to invest to beat inflation (or their FA pressures them into it).

They're fortunate enough to have enough of a pension to attract extra tax.

For many people none of these are urgent enough to bother. It's going to vary from person to person depending on their personal circumstances.

NormalNorman

I’ll be taking two lump sums out the possible five. The reduction has been factored in to our calcs and other assets. Why? Going to party abroad and embrace life in the gogo years. See absolutely no point in getting to the point of more income than now but to old to enjoy other than give it away in tax, care, family etc. Of course some will benefit but I didn’t work all these years not to benefit either.

horsewithnoname

I took my standard classic lump sum, because I know me and I knew I would spend it! (As this is a money saving site, I spent it on my home, future proofing it and making it better for me 😁) and I need the income from the pension.
As for taking it early, I took mine a couple of years early, and because inflation was over 10% and pay awards were non existent, I have a higher pension than if I’d waited till my pension age, so inflation more than matched the actuarial reduction. (Dumb luck of course, “thanks” Liz)

There are no easy decisions 🤔

mrklaw

no lump sum here. I wanted higher DB amount to take early (60 rather than 65) and the date is calculated to hopefully mean DB+2xSP = our income needs. that removal of any need from our savings post 67 I think is valuable for us