NHS Pension Advice Needed

ChrisPA

My mum is retiring in August at the age of 60 and is in good health. She has a decision to make about her NHS pension.
It's a question of whether to take a lump sum of around 30,000 and pension of 10,100 or lump sum of 54,000 and pension of 8,100.

Her mortgage is already paid off and has savings and investments of around 100,000 so the lump sum payment is there to be invested.

If anyone has an opinion on which option is best would be much appreciated.

Thanks

Ian_W

Hi Chis and welcome,
I'm certainly no expert but you're near the bottom of P1 with no takers so at least you'll get bumped. I don't believe there is a "right" answer as such but there are pros and cons of each option and your Mum has got to decide which she feels is best for her, she'll only know if it actually was best with hindsight I'm afraid.

Lump Sum pros - it's tax free, she's got the money to do with as she wishes now while she's younger, if something tragic happens reasonably soon after retirement she will have left it as part of her estate. If she invests it well it could do better than the RPI increases she'd get if she's taken it as pension.
Cons - The lump is only 12x the amount surrendered so if she lives beyond 72, and life expectancy suggests she should live twice that long at least, then she could lose out in monetary terms. Any income generated is likely to be taxable, unless or until she gets it into ISAs or other tax free vehicles, which makes it more difficult to beat RPI growth of her pension.

Finally she ought to consider age allowance. Won't apply until she's 65 - but then she will be able to have income of £10K tax free but that gets clawed if her income [state, nhs pensions and savings income exceeds around £21K].

HTH.

EdInvestor

She needs to look at her tax position: what will be her total pension and other taxable income (incl state pension, savings interest and any other taxable investment income) bearing in mind her age allowance at 65 - likely to be around 10k, and the age allowance clawback level, currently about 22k, where you incur penal taxation.

misterh

I'm no financial expert but simple maths says that the £24000 bigger lump sum would have to give a return of over 8.33% to beat the £2000 a year bigger pension.
On the other hand, the larger lump sum adds to your mother's estate.

I think as a son I would tell my parents to take the bigger pension but as a parent I would want to leave more.