The commutation question

mccaba

I'm getting a redundancy option with an immediate pension. I'm 51 and intend getting another job in a few months. I'm a higher rate taxpayer.

I will get a pension of £32,000 or I can have a reduced pension of approx £24,000 and a tax free lump sum of £160,000. I also have options to augment the pension by using the amount above the tax free redundancy limit of £30,000 which would add about £1100 per annum to the pension.

I'm tempted to commute as much as I can and manage the capital for additional income or reinvestment. However, I'm hesitating because of age, and the fact that I will go back to work. The pension is partly inflation proofed with increments added each year.

All views appreciated.

Andrew

shaunrc

Hi mccaba

Firstly please do not take this post as advice as I am an IFA and that has a specific meaning for a regulalted person like me.

In terms of real advice I think you would need to discuss your full situation with an adviser.

If I was you I would check on how " inflation-proofed " the pensions from that company have been and how secure the scheme is. Once you have done that you will be more informed. An income of £8000 a year index linked at 51 is quite valuable given life expectancy these days. However you need to consider your personal circumstances. Do you need the income or a tax free lump sum?

Also if you go back to work and are a higher rate taxpayer then the pension payment will be hit by 40% tax. One thought is for your time back at work for you to fund a personal pension with the money to further build up your retirement savings. This will save you paying tax on your pension.

My suggestion would be to get a full review. Also your personal circumstances intervene as in what you prefer.

EdInvestor

mccaba wrote: »

I will get a pension of £32,000 or I can have a reduced pension of approx £24,000 and a tax free lump sum of £160,000. I also have options to augment the pension by using the amount above the tax free redundancy limit of £30,000 which would add about £1100 per annum to the pension.

Blimey, you're right on the HRT borderline with the pension alone before you even think about work.

I'm tempted to commute as much as I can and manage the capital for additional income or reinvestment.

Sounds like a good idea to me.

jennifernil

Wow! Even at 65 after 32 years with the same company, OH's pension is way less than that!