Help with Early Retirement Package before 29 Feb

pierreored

My brother has been given the following options on early retirement.He will be 57 in April and can't work out the best deal which must be decided by Friday 29th February.

Option 1 £14,500 pension + £42,000 lump sum immediately.

Option 2 £14,500 pension + £10,000 lump sum immediately + £37,000 in 3 years time.

Option 3 £12,300 pension + £69,000 lump sum immediately.

If anyone could help we would be very grateful.

MoneyTown

I'm no expert but personally I'd take 1 if I needed the lump sum now or 2 if I didn't. 3 doesn't appear good value unless he plans to die soon.

dasherman

Options 1 & 2 are much the same really assuming he invests the £42k & £10k lump sums for the 3 years.

Option 3 should only be taken if he's desperate for the money now or he's terminally ill.

Personally I'd go for option 1 and make sure I get the money in the bank asap.

bigbloke45

Does he work for a private employer?, if so where is the pure income option?

Is it a final salary scheme or a money purchase scheme?

Does he have the option to effect life cover from his scheme without medical evidence?

Is his pension index linked?

Does he need tax free cash?

You need to get a lot more info before you make a decision.

As an idea, if he doesn't need immediate cash and his pension is index linked and he can get life cover without medical evidence and it's got good rates, go for the full pension without tax-free cash and buy a whole life policy for the same as the tax-free cash would have been, why, because his pension income will rise with inflation but his premiums will stay the same, thus he is using his pension scheme to fund the life cover so his family will still get the tax-free cash! OK, the value of the life cover will fall but the income received is worth so much more

EdInvestor

You also need to look at his other taxable income (eg state pension) and overall tax position.

At age 65 he will be eligible for an annual 10k age based personal allowance.But this starts to get clawed back at a punitive rate once income reaches around 21k.

Since a lump sum can be placed into ISAs and other tax free investments, a person whose pension income is up round the age allowance clawback level can be better off taking the larger lump sum.

If the spouse has a low taxable income and is wasting part of her age allowance, income from the lump sum can also be obtained tax free in her name.

pierreored

Thanks for your replies.
He works in local goverment so it is final salary based on his years service.These appear to be the only options he has been given.
He is single with no dependants.

bigbloke45

If he's single with no dependants and he's a local government employee, does he want the cash?

Once again, what are his objectives? Answer them and the solution should be clear

lic

A mate of mine reited early last year. He did not take a lump sum (called commutation). He took a full pension instead. He got advice, which told him if he lived for 12 years after the date he retired, no taking the lump sum was more profitable to him. He did take out Life ins though and still thinks he is quids in.
I plan to do the same when the happy date arrives for me, if i'm lucky.

bigbloke45

Lic, this is great news to me!

I chose to take the tax free cash. In hindsight I think I was wrong. I did take the life cover option as well. The stupid thing is that I've spent a lifetime advising people on what to do at retirement! Oh, b****r!

EdInvestor

Does he already have a large swathe of other investments or cash?

Has he paid off his mortgage?

Might his property need money spent on it in future?

What does he want to do in retirement? ( Travel is expensive )

How big is his state pension and how much income does he need to live on?

Justa few questions.

It's impossible to say on the info given so far.

Retired_I.F.A.

What about option #4 Take the full fund value and transfer it to a plan of his own and then draw cash and or income from it.
Chances are it's an option never even been mentioned let alone investigated.

Oh yes, forgot to add, a decision does not have to be taken by the date you mentioned. All they mean there is those figures would have to be recalculated beyond that date, in reality you would not see much difference unless something major were to happen in the world such as china dropping a bomb on the Whitehouse or a cure for cancer were announced.