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  • FIRST POST
    • Simple Soul
    • By Simple Soul 22nd Mar 18, 7:25 AM
    • 36Posts
    • 19Thanks
    Simple Soul
    BT Pension options: opinions please
    • #1
    • 22nd Mar 18, 7:25 AM
    BT Pension options: opinions please 22nd Mar 18 at 7:25 AM
    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.
Page 3
    • Tom99
    • By Tom99 30th Mar 18, 9:55 AM
    • 1,958 Posts
    • 1,290 Thanks
    Tom99
    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.
    Originally posted by Simple Soul
    And it is tax free so that pushes out the 30 years even further.
    • AnotherJoe
    • By AnotherJoe 30th Mar 18, 10:42 AM
    • 9,059 Posts
    • 9,966 Thanks
    AnotherJoe
    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.
    Originally posted by Simple Soul
    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.
    Last edited by AnotherJoe; 30-03-2018 at 10:44 AM.
    • saintalban
    • By saintalban 30th Mar 18, 5:36 PM
    • 15 Posts
    • 7 Thanks
    saintalban
    Likely to be less than 30 years to break even - thatís 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. Iím 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 donít need a lump sum for anything in particular. I understand though that itís a bit of a rarity as most people go for the standard deal or the maximum lump sum options - and I can understand why.
    • Audaxer
    • By Audaxer 30th Mar 18, 10:39 PM
    • 1,019 Posts
    • 590 Thanks
    Audaxer
    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.
    Originally posted by Simple Soul
    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.

    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.
    Last edited by Audaxer; 30-03-2018 at 10:42 PM.
    • Simple Soul
    • By Simple Soul 31st Mar 18, 9:16 AM
    • 36 Posts
    • 19 Thanks
    Simple Soul
    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.
    Originally posted by kidmugsy
    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.
    • Audaxer
    • By Audaxer 31st Mar 18, 8:13 PM
    • 1,019 Posts
    • 590 Thanks
    Audaxer
    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.
    Originally posted by Simple Soul
    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.

    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.
    • Simple Soul
    • By Simple Soul 2nd Apr 18, 5:35 AM
    • 36 Posts
    • 19 Thanks
    Simple Soul
    And it is tax free so that pushes out the 30 years even further.
    Originally posted by Tom99
    Likely to be less than 30 years to break even - thatís only if the index linking to inflation is zero.
    Originally posted by saintalban
    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.)
    • saintalban
    • By saintalban 2nd Apr 18, 11:27 AM
    • 15 Posts
    • 7 Thanks
    saintalban
    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 weíve 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 isnít enough so at the moment Iím sticking with reverse commutation to maximise my pension.
    • Audaxer
    • By Audaxer 2nd Apr 18, 1:00 PM
    • 1,019 Posts
    • 590 Thanks
    Audaxer
    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 weíve got Brexit next year.
    Originally posted by saintalban
    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.
    • Simple Soul
    • By Simple Soul 3rd Apr 18, 5:06 PM
    • 36 Posts
    • 19 Thanks
    Simple Soul
    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.
    Originally posted by Audaxer
    BT pension, I have been told earlier in this thread, is not capped.

    Sorry to hear that yours is. What company is that?
    • robin61
    • By robin61 3rd Apr 18, 6:35 PM
    • 598 Posts
    • 468 Thanks
    robin61
    BT pension, I have been told earlier in this thread, is not capped.

    Sorry to hear that yours is. What company is that?
    Originally posted by Simple Soul
    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.
    The problem with socialism is that you eventually run out of other people's money.
    • Simple Soul
    • By Simple Soul 4th Apr 18, 9:01 AM
    • 36 Posts
    • 19 Thanks
    Simple Soul
    Thanks to everyone who has responded. All your views have been extremely useful in helping me to decide.

    I will have send off my final decision in a couple of weeks.

    I have taken everything said on board, including advice re: Will and BT shares.

    I now appreciate, more than ever, how lucky I am that my pension, whichever option I choose, should be enough to live off for the long haul. And that, though it was changed from RPI to CPI, at least it is not capped (as yet anyway). I feel for those who are not so fortunate.

    For me, it is a very close call between the Standard Option (best value for money), and the Maximum Pension Option (best long term security).

    After much swinging back and forth, I think I am going to go with the latter.

    If I choose the £47k TFLS and I end up getting an inheritance of £100k, I think I will regret not opting for the extra pension, to balance it out.
    More so, than I think I would regret not having the cash, if I inherited nothing.

    I will feed future savings into 5 year Cash ISAs. I have considered investing, but it is high maintenance, risky, and stressful, and I don't think I need to go there.

    In my original post, I said that I planned to defer my State Pension until I was 70 or 75. I have changed my mind about that. I now intend to take it at SP Age. Deferral is a complication I don't need (and I don't entirely trust myself not to forget the pension is there, and end up not claiming it at all).

    So, that is where I am today. Thanks again everyone. You're the best.
    • donny jim
    • By donny jim 4th Apr 18, 9:32 AM
    • 55 Posts
    • 17 Thanks
    donny jim
    In your circumstances, I think option 1 is best, but I think it is time you became more adventurous. You have been careful with your money, and yes you may live a long time, but no one knows what's around the corner. Are you retiring ?. If so why defer your state pension. Unless you went really mad (spending) your income will be well above your expenditure, enjoy life while your young enough to enjoy it. REMEMBER you only have one life, make the most of it.
    • saintalban
    • By saintalban 4th Apr 18, 7:25 PM
    • 15 Posts
    • 7 Thanks
    saintalban
    A wise decision OP and I also agree about avoiding investing in the stock exchange and sticking with cash ISAs. Iíve got a S&S ISA which has gone all over the place for the past 4-5 years and when itís up it looks good but that doesnít balance out the stress caused overall. Good luck for your retirement when youíll be free to do whatever you want!
    • mgdavid
    • By mgdavid 4th Apr 18, 7:30 PM
    • 5,525 Posts
    • 4,823 Thanks
    mgdavid
    In your circumstances, I think option 1 is best, but I think it is time you became more adventurous. You have been careful with your money, and yes you may live a long time, but no one knows what's around the corner. Are you retiring ?. If so why defer your state pension. Unless you went really mad (spending) your income will be well above your expenditure, enjoy life while your young enough to enjoy it. REMEMBER you only have one life, make the most of it.
    Originally posted by donny jim
    It's a personal view, people are different. Our OP is happy to take a long-term view and go for the higher regular pension which will protect against the unforeseen (e.g. means-tested SP or buying in some help from carers later in life) whereas others will go for the short-term lump sum which enables 'instant gratification' (but when it's gone, it's gone).
    The questions that get the best answers are the questions that give most detail....
    • Brokeass
    • By Brokeass 16th Apr 18, 7:59 PM
    • 18 Posts
    • 6 Thanks
    Brokeass
    Opinion too please?
    I don't have much information but I am thinking of taking my pension early at age 50. I took VR too in 2015. I have about 18 yrs service pre CARE and 6 years Post. I have small AVCs too. What kind of impact should I expect on taking it this early.

    I am thinking of carrying on working probably about £10k pa.

    I did ask for a CETV last year that was 145k. I have no clue about pensions really. So if anyone has a scooby I would really appreciate some insight.
    Where did all my money go??
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