Quick sense check for my brother's fire service pension options

HedgehogRulez

they’ve already agreed a divorce settlement

Silvertabby

https://forums.moneysavingexpert.com/discussion/comment/82104299#Comment_82104299

Does that include an actual PSO?

PropertyGuru_Wannabe

No one seems to have mentioned that he can actually opt into one of the two schemes from 2015 - 2022 (remedy period) and choose his lump sums. How much extra contribution does he have to pay or refund to go into either schemes?

It’s a bit of a no brainer to me that he opts into the legacy scheme and chooses the maximum lump sum 23:1 in the legacy scheme but no lump sum 12:1 in the 2015 scheme to maximise the commutation amounts.

QrizB

It’s a bit of a no brainer to me that he opts into the legacy scheme and chooses the maximum lump sum

I can't see any good reason to take any lump sum at all. What makes you think it's a "no brainer"?

HedgehogRulez

https://forums.moneysavingexpert.com/discussion/comment/82104453#Comment_82104453

i concur with this - he's 49 years old and in excellent health. Mad to take a lump sum imo

horsewithnoname

https://forums.moneysavingexpert.com/discussion/comment/82104453#Comment_82104453

it seems to be a fairly commonly held thought that taking a huge lump sum is the best option. I think people get a bit overwhelmed by a figure that is more than they are ever likely to see any other way, rather than thinking about their ongoing situation. And I’m in the civil service scheme where the rate is 12:1; still people say taking the maximum lump sum is “a no brainer” when in many cases it really isn’t.
as with most things, you need to consider your own personal circumstances, and make the right decision for you.

NormalNorman

https://forums.moneysavingexpert.com/discussion/comment/82104542#Comment_82104542

One if my schemes is 23:1 but still not interested in the lump sum as I’d rather have the income for ~30 years. Nothing to pay off. Plan on using DC for fun tokens not DB.

jimi_man

https://forums.moneysavingexpert.com/discussion/comment/82103932#Comment_82103932

What happens at 55 is that your pension is increased to what it would have been had CPI been applied every year.

Not applicable in this case he is going on ill health so gets it applied from day 1 but if you weren't then he'd get 6 years of no increases and then when he's 55 his pension would have all those increases over the last six years applied.

23:1 is a rubbish commutation rate. Ok if you're 65 but not when you're 49.

PropertyGuru_Wannabe

https://forums.moneysavingexpert.com/discussion/comment/82104453#Comment_82104453

We’ve had this debate before. I will give you an example for him to take it. Say he lives until 80, he has accumulated 3,000 x 31 years so £93,000. If he puts that £86,000 into an investment and gets say conservatively 6% every year, that amount equates to over half a million if not more which he can hand down any spouse/child.

In addition, if he is working full time on another job, is the pension going to push him to a higher rate tax bracket?

Of course it depends on many factors which we do not have the information for but if I look at this in isolation, then this is what I would do. Is the extra 3,000 a year a game changer in his circumstances?

Secret2ndAccount

It would not be mad to take a 23x commutation. Put 230k into a 40 year index linked gilt ladder and it returns £8500 per year, tax free. Leave the same amount in the pension and it adds 10k per year. After 20% tax that's 8k, so less than the gilt ladder. Gilt ladder can be inherited, or you can change your mind and sell out of it later, Annuity rates for 49 year olds are not widely published, but a quick bit of extrapolation suggests the return is in the same ballpark as the ILG.

So the 23x is not a no-brainer ad it's not madness. It's in the ballpark.