Higher lump sum or annual income?

michaels

https://forums.moneysavingexpert.com/discussion/comment/82067692#Comment_82067692

Tax payers benefit when pensioners chose a 12:1 commutation rate

Apparently the majority take it

Offer a larger proportion of the total pension as a lump sum and no doubt many would still take it.

All these savings means lower taxes or more money for the NHS or more civil servants if that is your priority.

What makes a remark stupid?

michaels

https://forums.moneysavingexpert.com/discussion/comment/82068755#Comment_82068755

Explain your logic please. How does whether civil servants (or anyone else with a DB and a 12:1 commutation rate) pay tax impact whether it is cheaper for the pension provider if the max commutation is taken?

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/82068755#Comment_82068755

They don’t say anything that suggests thats what they are assuming.

simply that if lots of pensioners choose to take max tax free cash at a low commutation factor, that is likely to reduce the overall cost of maintaining those pensions - in this case the CS scheme would be less expensive than if everyone took no tax free and took the maximum income. For a public sector scheme that means lower cost to the government and tax payers ultimately

horsewithnoname

https://forums.moneysavingexpert.com/discussion/comment/82069078#Comment_82069078

not in so many words of course

michaels

To be fair, if you as a pensioner are earning over 100k in the personal allowance withdrawal 'trap' then taking the tax free may work out the better bet given average longevity….

MK62

There's no real right or wrong to this……much depends on the retiree's age - the younger the retiree, the more that favours taking higher income over any tax free lump sum….and vice versa.

In the OP's case, breakeven is around 22 years (given current projected inflation, interest rates and income tax rates)………retiring at 57 means on average she'd be better off taking the higher income (since breakeven would come at around 79)……..however retiring at 67 means breakeven coming at around 89, which does shift the goalposts somewhat.