Pension Increase from Redundancy

smartyarty

I am after some more informed advice for a family member I am advising. I have advised she speaks to an IFA but would appreciate some views anyway.

She is 37 and about to get paid some redundancy money, of which the first £30k is tax free, however the remainder would be taxed at her marginal rate – 40%. She has the option of buying additional pension in her company's final salary scheme (a large blue chip). If she paid in the remaining £60k gross of the redundancy (which after tax would really be worth £36k) this would buy c. £10k pa additional pension from age 60. The amount would also be index linked.

I see this as an option to gain £10k a year pension from age 60 for a £36k contribution now. If she dies her partner gets half of this pension and she can also draw the pension at 50 but would lose half (i.e. £36k would be £5k pa additional pension from age 50)

A key question - she can easily afford to tie up the £60k/£36k as she doesn’t need it to live off, hence the decision.

It seems like a good investment to me, especially as she can afford it, but can anyone advise (I would be particularly interested in Dunstonh’s views).

Many Thanks

CLAPTON

If she took the 36k and invested it herself, in REAL terms (after considering inflation) she would be lucky to get say 3% growth...
after 23 years (i.e. when she's sixty) that would then be worth (in todays terms ) about 71,000

So her 10k pension (presumably in todays terms ) gives a return of 10/71 = 14% indexed to inflation...... an unbeatable return.

and by the way she can't take a pension until 55 (Gov is changing the rules)

On the other hand she can have 36k to play with now.