Taking reduced NHS pension for larger lump sum.

hardpressed

I can take a small NHS pension this year, when I'm 60. I'd welcome any opinions on whether I would be better off taking a smaller pension with a larger lump sum, here are the details. I can have an annual pension of £450 plus a lump sum of £1350 or a reduced pension of £362pa and an extra lump sum of £1056, making a total of £2406, the difference between the 2 annual figures is £88. So if my maths is correct, which is unlikely, it would take me 12 years to break even, not allowing for inflation. As I intend to continue working part time for a few years, I thought that by reducing my pension I would pay less tax, as the lump sum is tax free. Am I thinking along the right lines, can anyone see any pitfalls?

Andy_L

Some points to ponder:

The NHS pension is fully index-linked to RPI, a guestimate of RPI at 4% (about the current rate) gives breakeven at ~10 years.
You will avoid £17.60/£35.20 income tax (20/40% rate).
You're giving up £1 of pension income for £12 of lump sum. You cant then get £1 of (guaranteed for life, RPI indexed) income by investing £12 so there is a "cost" to taking the lump sum.
Whether that cost is worth paying depends very much on your personal circumstances (existing savings/investments/income, age, sex, health, likely longevity, tax situation etc).