BT Pension options: opinions please
Comments
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Simple_Soul wrote: »Thanks for all your comments. I do not have a Will because I am happy with the Rules of Intestacy.
When I die everything would go to my parents.
If they are both dead, it would be divided equally between my surviving siblings.
If they are all dead, it would be divided equally between their children (my nieces & nephews).
That is all I would put in a Will anyway.
I do not have any jewelry or anything expensive other than the house. My possessions are functional and mostly cheap and old.
It makes it much easier and simpler for the people stuck with sorting out your affairs if there is a will naming the beneficiaries and executor.
My mother died with a will and that pretty much follows the law of intestacy but it names me and brother as executors and we can just crack on with no one asking us who appointed us executor, "are you sure there isnt a will" or no doubt a bunch of other legal guff Id. Nice and clean, nice and simple.
OTOH a friend of mine whose uncle died without a will has inherited a big mess to clean up, of which solicitors will take a big chunk as relatives squabble even though in theory intestacy makes it simple. Even who the executor would be has been a bone of contention amongst remaining relatives who were civil to each other before this and now pass written notes to each other so there's a record kept of who said what.
Please make a will for their sake.0 -
Likely to be less than 30 years to break even - that’s only if the index linking to inflation is zero. I think it comes down to what most gives you peace of mind - a lump sum and less pension or no lump sum and more pension. I’m in the civil service but the options and reverse commutation factor seems to be similar. I also have until mid April to decide which option to go for but have pretty much decided on maximum pension as I don’t need a lump sum for anything in particular. I understand though that it’s a bit of a rarity as most people go for the standard deal or the maximum lump sum options - and I can understand why.0
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In your position, as you don't seem to need a lump sum, I would normally think you should take the full pension with no lump sum as you already have plenty of cash savings to fall back on if needed.Simple_Soul wrote: »Everything you said is spot on, but the nearly 30:1 reverse commutation factor means that it will take 30 years to break-even (I.e. before the cumulative additional pension exceeds the lost TFLS). So, I would be aged 90 before I started to be in profit. That is a long time. I do not want to throw money away.
However looking at the figures I agree that the £47k seems a very good option as it could take over 28 years of the extra pension to break even. One way to look at is that the extra pension you are giving up for the lump sum is only £1,330 per annum after tax, which equates to only 2.8% of £47,448, even although it would be increasing with inflation. So giving up the lump sum seems to me a bit like using it to buy an annuity that only pays 2.8% per year. So I would be tempted to take the lump sum, but rather than leave it in cash savings which will return less than 2.8%, you could consider investing it as you're likely to get a better long term return than cash if invested in say, a globally diversified multi asset fund.
If you do take the lump sum, there is no rush to decide what to do with it, but investing it may be worth researching and considering as an alternative to cash savings.0 -
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.
Thank you for giving this so much thought.
A bit more background:
I have CFS (Chronic Fatigue Syndrome), and have had it it for at least two decades. (It is unlikely to affect longevity.) It manifests differently in different people. With me it is very low physical and mental energy and chaotic sleep patterns. I remember saying to my doctor 10 years ago, that my 80 year old mother had more 'get up and go' than I did.
I took Voluntary Release a decade ago, because I was not managing to pull my weight. I basically jumped before I was pushed. Luckily, a natural consequence of low energy is not doing much and therefore not spending much. (It is not that I am a good saver, or that I deprive myself.) As a result I had enough savings to support myself for the last 10 years.
It has also worked well for me because I have been able to help my parents with personal assistance, housework, paperwork (though not as much as I would have liked).
If I had been working it would have been all I could do to keep my head above water. I would have had nothing left to give anyone.
However, my house has remained neglected. This may not change, but hope springs eternal, and others have spontaneously recovered from this condition.
Ideally, I would like enough in savings to do up my house and maybe, later on, move to a bungalow or flat, and get the new property the way I want it. And I would like to be able to this without having to save up or borrow.
However, because of my condition, none of this may be possible. Right now, for instance, moving would be utterly beyond my capability: mentally, physically, & emotionally. I just could not cope.
So you see, although I do have something specific that I want to do with the money, it would not be immediate, and may never happen at all.
Not straight forward, I'm afraid.0 -
Sorry to hear about your illness which must make the decision of which option to take even more difficult. In view of what you say, the best option in my opinion would still be the one with the £47k lump sum, as the £15k pension seems to be enough for you to live on comfortably, and even more so when the State Pension kicks in.Simple_Soul wrote: »Thank you for giving this so much thought.
A bit more background:
I have CFS (Chronic Fatigue Syndrome), and have had it it for at least two decades. (It is unlikely to affect longevity.) It manifests differently in different people. With me it is very low physical and mental energy and chaotic sleep patterns. I remember saying to my doctor 10 years ago, that my 80 year old mother had more 'get up and go' than I did.
I took Voluntary Release a decade ago, because I was not managing to pull my weight. I basically jumped before I was pushed. Luckily, a natural consequence of low energy is not doing much and therefore not spending much. (It is not that I am a good saver, or that I deprive myself.) As a result I had enough savings to support myself for the last 10 years.
It has also worked well for me because I have been able to help my parents with personal assistance, housework, paperwork (though not as much as I would have liked).
If I had been working it would have been all I could do to keep my head above water. I would have had nothing left to give anyone.
However, my house has remained neglected. This may not change, but hope springs eternal, and others have spontaneously recovered from this condition.
Ideally, I would like enough in savings to do up my house and maybe, later on, move to a bungalow or flat, and get the new property the way I want it. And I would like to be able to this without having to save up or borrow.
However, because of my condition, none of this may be possible. Right now, for instance, moving would be utterly beyond my capability: mentally, physically, & emotionally. I just could not cope.
So you see, although I do have something specific that I want to do with the money, it would not be immediate, and may never happen at all.
Not straight forward, I'm afraid.
If you want to put the £47k into a cash savings account, then an option could be to put it in an NS&I Guaranteed Growth Bond which is 3 year fixed at an interest rate of 1.95%. Although fixed for 3 years, if you need access to the money at any time there is only a 90 day interest penalty on any withdrawals. So if you needed the money after say one year, you would probably still have earned interest at a better rate than most of your other cash savings.0 -
And it is tax free so that pushes out the 30 years even further.saintalban wrote: »Likely to be less than 30 years to break even - that’s only if the index linking to inflation is zero.
I projected it forward on an excel spreadsheet, & unless I've made a mistake, the break-even is exactly 30 years.
I used net (after tax) figures, and I depreciated the value of both the BT pension and the TFLS by 1% p.a.
(I read somewhere that the CPI is, on average, 1% lower than the RPI. And I assumed a 1% gap between the inflation rate and interest rates for Cash Savings, as is the case at the moment, with 3% inflation & a 2% interest rate on my 5 year cash ISA.)0 -
Well done working that out OP that sounds about as scientific as possible to be in recent years anyway. I was thinking back to the 80s and 70s when inflation was in double figures eg over 20% I think in the 70s, given we’ve got Brexit next year. However I agree with Audaxter that you are probably better off with your standard deal given your health issues and that the pension part is enough to live on. In my case the standard deal pension isn’t enough so at the moment I’m sticking with reverse commutation to maximise my pension.0
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I don't know whether the CPI increases in the OP's DB pension are capped. My DB pension which is also due soon is linked to RPI increases but subject to a maximum of 2.5% so if there was double digit inflation my pension would still fall in value in real terms.saintalban wrote: »Well done working that out OP that sounds about as scientific as possible to be in recent years anyway. I was thinking back to the 80s and 70s when inflation was in double figures eg over 20% I think in the 70s, given we’ve got Brexit next year.0 -
I don't know whether the CPI increases in the OP's DB pension are capped. My DB pension which is also due soon is linked to RPI increases but subject to a maximum of 2.5% so if there was double digit inflation my pension would still fall in value in real terms.
BT pension, I have been told earlier in this thread, is not capped.
Sorry to hear that yours is. What company is that?0 -
Simple_Soul wrote: »BT pension, I have been told earlier in this thread, is not capped.
Sorry to hear that yours is. What company is that?
There is no cap on scheme B which is linked to CPI. I believe you are in scheme B.
However there is a cap on increases in scheme C which is linked to RPI although I believe that BT are set to appeal the high court case they lost recently to try to change this to CPI.0
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