BT Pension options: opinions please

Simple_Soul · 22 March 2018 at 8:25AM

I am soon turning 60, and have to decide on my BT pension option.

The main choices are:
1. Standard option: £15, 816 p.a. gross, + £47,448 TFLS (Tax Free Lump Sum).
2. £13,583 p.a. gross + £90,554 TFLS.
3. £17,478 p.a. gross (no TFLS).

I am not sure whether the commutation rates are good or bad.

The BT pension is now linked to the CPI rather than the RPI, so it will depreciate over time.

I would like a 50/50 balance between enjoying my money now, and looking after my 100 year old self.

This is my only pension other than the State Pension (SP). My SP Age is 66, and I expect to get the full New SP (currently £8,296 p.a. gross). I will probably defer this until I am 70, maybe 75, in order to pay less tax, and for greater longevity insurance.

The monthly net BT pension for each option would be, respectively:
1. £1,246
2. £1,097
3. £1,356
My average expenditure over the last 3 years has been £700 p.m.

I have about £100k in savings, roughly distributed as follows:
£20k in Santander 123 Current Account (1.5% for balances up to £20k)
£20k in NS&I instant access Cash ISA (1%)
£20k in Skipton 5 year Cash ISA (2%)
£10k in Premium Bonds
£30k in BT shares.
I want to get rid of the BT shares, but I can't bear to sell them at the price they are now.

My parents are in their 90s. If they need professional care or care homes in the future there will be no inheritance. If not, there could be up to £100k for each child.
I will have no other possible source of income (unless I win big on the Premium Bonds).

I am happily single with no dependents. I live alone. The mortgage is paid off, and I have no debt.
I have a quiet lifestyle; I am not much one for travel or holidays or eating out, nor do I have any expensive hobbies or interests. However, my house is somewhat run-down, and I would like to do it up. Also, my car is old and will become beyond economic repair at some point. (I would buy new, but small and cheap.)
I am therefore tempted by the higher TFLS option. With this option I would also pay the least tax.

On the other hand, if we get a long period of high inflation with a wide gap between the inflation rate and interest rates, the real value of savings will be decimated (as happened in the 70s). My fear is that Brexit, or some other issue, may cause this to happen at some point over the next 30 or 40 years. If so, even a semi-indexed linked pension is likely to retain its value better than savings.

What would you do if you were in my circumstances? Please feel free to be as critical and sarcastic as you like. I just want your honest opinions.

k6chris · 22 March 2018 at 8:35AM

If it was me (which it isn't!) - Not option 2 (both 1 and 3 give you a nice buffer to your monthly spend). You seem to be a saver, so if you take the TFLS you will add it to your savings?? I would go for 1 as it gives more flexibility, but if you can live off £700 a month then you are in a very good place - well done. Oh, sell half the BT shares, then if they go down you are happy and if they go up you are happy

Dazed_and_confused · 22 March 2018 at 9:38AM

My SP Age is 66, and I expect to get the full New SP (currently £8,296 p.a. gross)

Have you actually checked this on your personal tax account?

It seems possible/probable that you have been contracted out for a considerable time and therefore you may only reach the £8,296 by contributing for several additional years.

If you continue to work after taking your BT pension this may not be much of an issue but would highly recommend you check this out now (you can have done it on gov.uk in less than 10 minutes

).

Read the info carefully. The headline will likely say you can get £159.55/week but lower down it will tell you what you are actually entitled to now (as of the end of the 2016:17 tax year) and how many extra qualifying National Insurance years you need to contribute to reach the £159.55/week figure.

If you intend to stop work when you reach 60 you may be able to purchase additional years by paying voluntary NI and this is seen as a decent investment as you can get £4.55 extra on your pension per week (one extra qualifying year) for a one off payment of around £740-750.

kidmugsy · 22 March 2018 at 2:57PM

Simple_Soul wrote: »

However, my house is somewhat run-down, and I would like to do it up.

Think hard about the house. Might it be wiser to move to a house that would suit you better at 80, 90, 100? You will no longer be tied by the location of your work, so the option presents itself. How much capital might you need to move into somewhere more suitable?

Alternatively, think hard about doing it up. Should you, at the same time, make it more suitable for a codger? For example, downstairs loo, downstairs shower, lift or chair-lift, electrical sockets at a handy height, ramp access to the front and back door, security equipment: installation of any or all of these might be best done as part of the refurbishment work.

Then once you've given it some reflection, you can cost the options and decide how much capital you'd want out of your BT pension.

My argument is that there's not much point stretching for capital unless you know what you want it for. If you want it for housing expenditure, then that might be a good balance against the annual pension you'd be giving up. On the other hand, you could also compare the cost of giving up pension with the cost of funding housing expenditure by using a conventional mortgage loan.

Keep_pedalling · 22 March 2018 at 4:58PM

I had the same choices a few years ago and went with 2, but in you4 situation I would go with 3. You already have a cash buffer way in excess of what you need.

Sell those shares, and spend the money on doing up the house and buying yourself that car. You will also suddenly find you have an lot of time on your hands so maybe you might find a nice pastime to spent some of that excess income on.

Linton · 22 March 2018 at 5:23PM

You already have the cash. So get the maximum gold plated income. In my experience CPI isnt semi-indexed, as long as there is no cap. Over the past 13 years my expenditure on living costs has barely increased by CPI, certainly not more.

needmorehelp · 22 March 2018 at 7:00PM

It would be option 2 for me, no one knows how long they will live or how health will be in future so that extra lump sum would swing it easily for me, with only a modest drop in pension.

Teaandscones · 22 March 2018 at 9:41PM

It would be option 3 for me given that you already have the cash and your family history.

Simple_Soul · 23 March 2018 at 6:08AM

Dear Dazed and confused, thanks for your reply.

I should have made this clearer. Yes, I have gone into the SP (State Pension) issue in detail. I have checked my SP forecast online and I have spoken to the Future Pensions Office.

You are correct in assuming that I was contracted out for most of my working life. (I am no longer working by the way.) Consequently, as at 6th April 2016 (the start of the New SP) I was only entitled to £124 p.w. (i.e. the full Old Basic SP plus a tiny bit of Additional SP).

However, if I pay Voluntary NICs for the 8 years from 2016/17 until my SP age, I will get the full New SP. I paid a lump sum of £733.20, by cheque, for 2016/17; and I am paying the rest by monthly direct debit.

The only little problem I am having is the time it is taking to update my NI record and SP Forecast online. They took the lump sum (£733.20) out of my bank account on 16th January this year, but the online figures remain unchanged.

I have rung them 3 times, and they confirm that their records show that the money has been received. The first 2 people I spoke to just told me to wait a few more weeks, but the last person I spoke to promised to contact the appropriate department.

I am sure it will resolve itself.
Maybe it always takes this long. Does anyone know?

Simple_Soul · 23 March 2018 at 7:18AM

Dear Linton, thanks for your comment & I take your point.

As far as I know, there is no cap. But that is not to say BT won't put one on in future, just as they switched from RPI to CPI (even for existing pensioners).

Also, the inverse commutation rate is nearly 30:1. (£30 TFLS for £1 p.a. pension.) Isn't that very poor? I don't really know.

And then there's the tax; I would be going from a tax free lump sum to a taxed pension.

Having said that, so far there are 3 people in favour of the higher pension, one in favour of the higher TFLS, & one for the middle standard option.

The higher pension was my least favourite option, but now I am seriously considering it.

Keep_pedalling · 23 March 2018 at 10:15AM

Because of your lifestyle you can!!!8217;t actually go wrong, whichever way you go you will hVe surplus income and savings.

In your position I would not worry about income tax, it will make very little difference to you.

If in many years time you find that you struggle to to do things like the gardening or housework, you are in the nice position to be stay put and pay other people to do that is you would rather do that than move.

Please make sure you do not simply save all that surplus income, without being a bit more generous to yourself, you cannot take it with you. Speaking of which, is your will up to date?

BT Pension options: opinions please

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