Full pension vs Lump sum

KAYGEE_2

I am 58 later this year and have these options.
1) Full pension of ca. £19500

2) Pension of ca. £14500 + lump sum of £95000

3)Lower lump sum + increased pension.

What are the best options.
Also, do you have to pay NI contributions on personal pensions.

I currently work part time.

dunstonh

With personal schemes you always take the maximum lump sum unless guaranteed rates apply or 100% lifetime annuity beats 75% lifetime annuity and 25% purchase life annuity.

Also, do you have to pay NI contributions on personal pensions.

No.

You should look at the open market option. Its a no cost option which allows you to put your money with the best income payer. Dont rely on your existing provider being the best.

CLAPTON

can you just clarify what sort of pension you are getting... is it a final salary scheme or a personal pension ?

EdInvestor

If it is a final salary pension, what is the "commutation rate".

Also, what other pensions will you be getting ( basic state pension or more?)

KAYGEE_2

Hi

It is a final salary scheme. Annual increase is min 3% to max 5%.

I think the commutation varies but the current rate is £16

EdInvestor

The commutation rate is not bad - 12 is regarded as basic, 20+ as excellent.

The reason I asked about your other income is tax. All pension income is taxable, including the state pension. After age 65 you are eligible for a larger age based personal allowance, which is 9k this year and going up to 10k by 2010. This age allowance starts getting clawed back when your taxable income hits around 22k at the moment, at a punitive rate. So it's wise to pitch taxable income either well past the age allowance clawback level (ie around 27k+) but below higher rate tax level.

If income is going to end up badly affected by the cawback, may better to take a bigger lump sum, which can be invested in a mixture of ways so that its income is not taxable.Also a larger lump can be better if there is a spouse, who will usually lose half the pension income on your death. Paying off debts/mortgage is another reason people go for lump sums.

carolyn_2

Great advice as I too am in the same quandry with the NHS pension from April 2008 my husband and myself can take larger lump sum and smaller pension and am usure which option is best or how to get independant advice.

Blowsy

Carolyn, the good news is that you have a public sector pension which is great. In terms of seeking independant advice, try http://www.unbiased.co.uk/ to find an IFA in your area.

dunstonh

Disregard my post #2 as that applies to personal schemes. It is now clear that the OP is on an occupational final salary pension and considerations are different (although some are the same, such as age allowance reduction as Ed mentions).

chuckles1066

KAYGEE wrote: »

I am 58 later this year and have these options.
1) Full pension of ca. £19500

2) Pension of ca. £14500 + lump sum of £95000

3)Lower lump sum + increased pension.

What are the best options.
Also, do you have to pay NI contributions on personal pensions.

I currently work part time.

(2) is your best option, in my humble opinion.

You're losing £5k a year on your pension but drawing £95k cash; you'd have to draw your pension for 19 years to break even (using simple maths, once you factor in inflation, it'd more like 24 or 25 years).

Unless you're sure you're going to live into your 80's (and none of can be), take the lump sum and enjoy it while you can.

NAR

I agree with chuckles - what's the point of having a large pension in your late seventies and eighties (and beyond) if you don't have the health to be able to get out and spend it. Take the large lump sum and SKI to your heart's content!! :beer: