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

QrizB

We’ve had this debate before.

And you're making the usual mistakes.

Say he lives until 80, he has accumulated 3,000 x 31 years so £93,000.

£3k pa indexed to inflation. that's £93k in today's money.

If he puts that £86,000 into an investment

From the wording of the letter, I am not sure the £86k is all tax-free. It's not stated to be tax-free.

conservatively 6% every year

Very few people would think beating inflation by 6% pa to be "conservative". Most of us would think beating inflation by 1-2% is conservative.

equates to over half a million.

£159k in today's money if you beat inflation by 2%. £117k if you beat it by 1%.

… which he can hand down any spouse/child.

He's just got divorced. Yes he might re-marry, but that's speculation.

Is the extra 3,000 a year a game changer in his circumstances?

It's the OP's brother's ill-health retirement pension. They have a need for an income and no guarantee that they'll be able to continue to work to SPA.

HedgehogRulez

there’s also the risk that a lump sum would be splurged on inappropriate purchases (oh I have £100k in cash, let’s buy a £50k car etc)

He’s an ex firefighter, not a massive saver (he just bought a new telly….)

Taking peoples relationship with money into account is very important. People aren’t perfect analytical machines.

A guaranteed higher regular income suits him much better imo and will be my clear steer to him.

PropertyGuru_Wannabe

https://forums.moneysavingexpert.com/discussion/comment/82104781#Comment_82104781

From what you're saying, you would rather take the 93,000 over the 31 years to age 80 rather than the 86,000 immediately. The growth of the funds over 11 years to age 60 would allow him to retire early to satisfy his expenditure and bridge the gap to his SPA. I do not follow in relation to your pessimistic growth rates rather than looking at historical facts. You could probably get the 1% above inflation by just putting the money into a fixed cash ISA.

I completely understand this forum is for Pensions and therefore the focus on guaranteed pension payments rather than investment growth. The OP has confirmed that his brother is not financially educated and therefore taking no lump sum is most likely the best outcome for him.

unforeseen

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

That is no different to the Armed Forces pension. (APFS75).

Silvertabby

https://forums.moneysavingexpert.com/discussion/comment/82105366#Comment_82105366

AFPS75 (non ill heath) is even better - at 55, the pension is restored to it's pre-commutation rate, then index linked back to the day of leaving. Ours doubled overnight.

QrizB

I do not follow in relation to your pessimistic growth rates rather than looking at historical facts.

Historical fact is that the lower quartile of 10-year real returns are below 2% pa (the worst period was -7% pa for a decade). Data from here.

You could probably get the 1% above inflation by just putting the money into a fixed cash ISA.

Historical fact is that interest-bearing saving accounts don't generally keep up with inflation.