lump sum or higher pension

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Samelsie
Samelsie Posts: 6 Forumite
in Pensions, annuities & retirement planning
How should I decide if i should take lump sum and lower pension or higher pension? Commutation is £15 for each £1 sacrificed. I won't be paying higher rate of tax
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  • Brynsam
    Brynsam Posts: 3,643 Forumite
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    If you have any debts to clear, then taking a lump sum could be one way to do this. If not, what will you do with the cash that would make it a sensible decision to take cash rather than pension?
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    How old are you? How would it affect your widow's pension?
    Free the dunston one next time too.
  • Tom99
    Tom99 Posts: 5,371 Forumite
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    To buy that £1 pension could very well cost say £35 so only accept £15 if, for whatever reason ,you really need £15 now.
    Don't take the £15 and just invest it.
  • Brynsam
    Brynsam Posts: 3,643 Forumite
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    kidmugsy wrote: »
    How old are you? How would it affect your widow's pension?

    Commuting part of your pension is just that - your pension (not any pension payable to a surviving spouse/partner/eligible child).
  • DairyQueen
    DairyQueen Posts: 1,822 Forumite
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    How much income do you need? How much of that income is required from this pension? Including for your spouse should s/he survive you? If possible, all expenses, and definitely non-discretionary spends, would be covered by guaranteed income (SP/DB/annuity).

    Assuming expenses are covered without taking your DB entirely as income, do you have other assets/pension pots/cash to cover debts/emergencies/one-off capital spends?

    Answering these kinds of questions will help you to decide whether to commute and, if so, how much.

    Personally, I would only commute to the level that I needed the cash.
  • DairyQueen
    DairyQueen Posts: 1,822 Forumite
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    Brynsam wrote: »
    Commuting part of your pension is just that - your pension (not any pension payable to a surviving spouse/partner/eligible child).

    Could you clarify? Surely any spouse/dependent pension will reduce proportionately if OP commutes? Most couples include the needs of the survivor in pension planning. I wouldn't want Mr DQ to be on his uppers if I die first, nor vice versa.
  • soulsaver
    soulsaver Posts: 5,969 Forumite
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    edited 9 August 2018 at 1:22AM
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    DairyQueen wrote: »
    Could you clarify? Surely any spouse/dependent pension will reduce proportionately if OP commutes? Most couples include the needs of the survivor in pension planning. I wouldn't want Mr DQ to be on his uppers if I die first, nor vice versa.
    Not in my experience - as Brynsam says - it's your pension that is being swapped for cash - not your widow(ers) benefits - they remain the same as if no commutation had taken place. But DYOR.

    I'd add in the mix that I believe the lump sum is tax free, but as a pension, is taxable - so your tax status going forward will affect your calculations, too.
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  • xylophone
    xylophone Posts: 44,412 Forumite
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    Could you clarify? Surely any spouse/dependent pension will reduce proportionately if OP commutes?

    If the LGPS is taken as an example, from their fact sheet

    Will my Survivor's Benefits be lower?

    If you decide to commute your annual
    pension to lump sum, it will NOT reduce
    any subsequent Survivor's Benefits
    payable to your spouse, registered civil
    partner or nominated co-habiting partner,
    and/or eligible children in the event of
    death.

    Or Shell

    Your surviving Qualifying Spouse will be entitled to 60% of the
    pension you received when you took your pension, but before
    adjustment for any PCLS taken and allowing for increases to the
    pension between the member's retirement and death.
  • DairyQueen
    DairyQueen Posts: 1,822 Forumite
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    Now, that's interesting. Thanks for the tip folks.

    I need to check the small print of Mr DQ's scheme. It has a tasty 2/3rds widow's pension but he believes that this will reduce proportionately if he commutes.

    Does anyone know whether the unreduced widow's/dependant's pension is a common benefit of private sector schemes?
  • Malchester
    Malchester Posts: 876 Forumite
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    edited 9 August 2018 at 6:59AM
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    I recently took my LGPS. I had deferred pension which became payable at age 60. I was under the assumption that the commutation rate was 12 to 1 and had worked my calculations on that basis and had decided to take minimum tax free lump sum and max pension. When I got the proposal it was a commutation factor of over 19 to 1 simply because of the specific time I was in the scheme. As a result I took the maximum tax free lump sum without affecting any future pension for my wife should anything happen to me. I figured on the basis above it was more beneficial to me to take increased tax free lump sum. At a commutation rate of 12 to 1 I would not have done it. At 15 to 1 it depends on personal circumstances - in my case I would probably have still taken the minimum - but we are all different with different circumstances, needs etc
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