Higher lump sum or annual income?

hugheskevi

https://forums.moneysavingexpert.com/discussion/comment/82066856#Comment_82066856

I was surprised to see that in the Civil Service alpha scheme Valuation 2024, only 12.1% was commuted between 2020-24, ie, roughly half the amount possible.

But sadly, all is not as it seems, the reason given by the actuaries being:

"we believe that data issues have led to Classic members being classified as alpha members for analysis purposes. This will be reducing the proportion commuted due to Classic members being eligible for an automatic lump sum. The particular data issue impacting this analysis is that scheme at retirement was missing for approximately 50% of records."

Who would have thought that Civil Service member data records were so bad 😉

daveyjp

If you don't need more of a lump sum don't take it. If you don't need the extra income you gain by not taking mire of a lump sum save it, open another pension to at least get some tax benefit.

jimi_man

Virtually every police officer I heard of took the full lump sum - and in most cases (because the commutation rate was such that the lump sum was over the '25%') - they paid a 40% tax hit on the extra amount over 25%.

I was the exception in not taking any and everyone thought I was mad!

mrklaw

obviously you should do the maths to work out whats best for your individual circumstances. But if you’re a public service lifer, perhaps with no other DC/equivalent high savings, I can see value in taking some tax free cash to provide a buffer/legacy. But blindly taking it all regardless is.. something.

although I can kind of understand the psychological desire to ‘take whats yours’ even if it is misguided

OldScientist

Just to give a different view. I took slightly more TFLS than the standard 3x salary for a number of reasons

1. We needed additional cash beyond our savings/investments to purchase a house and to provide a larger buffer for my OH in the event of my death (the DB income halves, the TFLS does not)
2. The income from the DB (which was initially roughly 75% CPI and 25% capped CPI) was adjusted to satisfy all of our essential and most of our discretionary spending. Even with the reduction, once we receive our SPs our income floor will still exceed our expenditure and we will probably become accumulators once more (not a terrible position to be in, but inefficient).
3. Since my DB pension (USS) is not a public one and at the time of retirement was technically under-funded, there is always the chance that it will fall into the Pension Protection Fund (which would result in a 10% drop in income and future CPI increases capped at 2.5%). So, I swapped that particular risk for market risk

bjorn_toby_wilde

I took the lump sum on one of my DB pensions but for good reasons (IMO).

It was private sector with a very good commutation rate (in the 20’s) and the in payment rises on the pension were poor. 50% of it had no increases (discretionary actually but that amounts to the same thing) and the remainder was capped at 2.5%.

The lump sum went into S&S ISAs where it’s grown quite nicely.

michaels

As a tax payer I am absolutely delighted every time someone takes a 12:1 lump sum. This should be encouraged as it reduces the burden of these pensions considerably.

Perhaps the maximum allowable commutation proportion could be increased to 50 or 100%?

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82067453#Comment_82067453

that’s the perfect way to do it. You had a need for the money, it wasn’t outside and tax exposed for long, and you calculated the amount needed from income for your budget.

I don’t think that’s a difference view - I think it’s in line with most on here

horsewithnoname

https://forums.moneysavingexpert.com/discussion/comment/82067554#Comment_82067554

civil servants pay tax as well. However why not get rid of the civil service and you can pay for all that yourself from all the tax you’ll save.
stupid remark

GunJack

I'm in the "some of both" camp... I've got one CS pension with standard 3x pension lump sum, one private sector DB with a standard (from AVC pot) and variable (from commutation) element lump sum, and a DC company pension (which replaced the DB one 2 yrs back).

I'll take the standard CS lump sum, the enhanced company ls at 18.75 commutation rate (for 1200 of reduced pension) and the 25% tfls from the DC. The first to be paid and middle-value (CS) will bin the mortgage off, the second (from the DC) will be saved towards house move, and the last from the company DB will be the biggest of the three and provide house move top-up if required and savings....

Think we're pretty well covered..