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  • FIRST POST
    • Samelsie
    • By Samelsie 8th Aug 18, 10:18 PM
    • 1Posts
    • 0Thanks
    Samelsie
    lump sum or higher pension
    • #1
    • 8th Aug 18, 10:18 PM
    lump sum or higher pension 8th Aug 18 at 10:18 PM
    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
Page 1
    • Brynsam
    • By Brynsam 8th Aug 18, 11:05 PM
    • 1,740 Posts
    • 1,276 Thanks
    Brynsam
    • #2
    • 8th Aug 18, 11:05 PM
    • #2
    • 8th Aug 18, 11:05 PM
    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
    • By kidmugsy 8th Aug 18, 11:49 PM
    • 12,187 Posts
    • 8,632 Thanks
    kidmugsy
    • #3
    • 8th Aug 18, 11:49 PM
    • #3
    • 8th Aug 18, 11:49 PM
    How old are you? How would it affect your widow's pension?
    Free the dunston one next time too.
    • Tom99
    • By Tom99 9th Aug 18, 12:15 AM
    • 3,099 Posts
    • 2,151 Thanks
    Tom99
    • #4
    • 9th Aug 18, 12:15 AM
    • #4
    • 9th Aug 18, 12:15 AM
    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
    • By Brynsam 9th Aug 18, 12:34 AM
    • 1,740 Posts
    • 1,276 Thanks
    Brynsam
    • #5
    • 9th Aug 18, 12:34 AM
    • #5
    • 9th Aug 18, 12:34 AM
    How old are you? How would it affect your widow's pension?
    Originally posted by kidmugsy
    Commuting part of your pension is just that - your pension (not any pension payable to a surviving spouse/partner/eligible child).
    • DairyQueen
    • By DairyQueen 9th Aug 18, 12:50 AM
    • 579 Posts
    • 955 Thanks
    DairyQueen
    • #6
    • 9th Aug 18, 12:50 AM
    • #6
    • 9th Aug 18, 12:50 AM
    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
    • By DairyQueen 9th Aug 18, 1:01 AM
    • 579 Posts
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    DairyQueen
    • #7
    • 9th Aug 18, 1:01 AM
    • #7
    • 9th Aug 18, 1:01 AM
    Commuting part of your pension is just that - your pension (not any pension payable to a surviving spouse/partner/eligible child).
    Originally posted by Brynsam
    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
    • By soulsaver 9th Aug 18, 1:15 AM
    • 2,145 Posts
    • 998 Thanks
    soulsaver
    • #8
    • 9th Aug 18, 1:15 AM
    • #8
    • 9th Aug 18, 1:15 AM
    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.
    Originally posted by DairyQueen
    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.
    Last edited by soulsaver; 09-08-2018 at 1:22 AM. Reason: last para added
    • xylophone
    • By xylophone 9th Aug 18, 1:15 AM
    • 27,657 Posts
    • 16,613 Thanks
    xylophone
    • #9
    • 9th Aug 18, 1:15 AM
    • #9
    • 9th Aug 18, 1:15 AM
    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
    • By DairyQueen 9th Aug 18, 1:59 AM
    • 579 Posts
    • 955 Thanks
    DairyQueen
    Commutation and widow's pension
    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
    • By Malchester 9th Aug 18, 6:58 AM
    • 137 Posts
    • 97 Thanks
    Malchester
    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
    Last edited by Malchester; 09-08-2018 at 6:59 AM. Reason: Mistake
    • kidmugsy
    • By kidmugsy 9th Aug 18, 4:39 PM
    • 12,187 Posts
    • 8,632 Thanks
    kidmugsy
    Does anyone know whether the unreduced widow's/dependant's pension is a common benefit of private sector schemes?
    Originally posted by DairyQueen
    It's a feature of my own principal DB pension. I urged the OP to look into it because I believe it's not universal.
    Free the dunston one next time too.
    • Triumph13
    • By Triumph13 9th Aug 18, 4:51 PM
    • 1,382 Posts
    • 1,833 Thanks
    Triumph13
    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?
    Originally posted by DairyQueen
    It's a good job this forum is anonymous or you might be in trouble if Mr DQ meets with an 'accident' shortly after taking maximum commutation!
    • Triumph13
    • By Triumph13 9th Aug 18, 4:55 PM
    • 1,382 Posts
    • 1,833 Thanks
    Triumph13
    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
    Originally posted by Samelsie
    Very simple. What would you do with the extra income? What would you do with the extra cash? Which has more value to you?
    What almost certainly doesn't make sense is taking the cash and trying to invest it to generate the same or better income.
    • DairyQueen
    • By DairyQueen 9th Aug 18, 5:32 PM
    • 579 Posts
    • 955 Thanks
    DairyQueen
    It's a good job this forum is anonymous or you might be in trouble if Mr DQ meets with an 'accident' shortly after taking maximum commutation!
    Originally posted by Triumph13
    Perhaps I should also stop introducing him as 'my current husband'.
    • Audaxer
    • By Audaxer 9th Aug 18, 7:43 PM
    • 1,493 Posts
    • 921 Thanks
    Audaxer
    What almost certainly doesn't make sense is taking the cash and trying to invest it to generate the same or better income.
    Originally posted by Triumph13
    I agree that would be my advice in most cases but it depends on the OP's and other half's circumstances. If the commutation factor was a bit higher than 15 it would possibly be worthwhile taking the lump sum and investing it. I understand most people with DB pensions take the tax free lump sum even in they maybe have no immediate plans for it, and probably without even considering the commutation factor.
    Last edited by Audaxer; 09-08-2018 at 7:59 PM.
    • Malchester
    • By Malchester 9th Aug 18, 8:30 PM
    • 137 Posts
    • 97 Thanks
    Malchester
    I agree with you Audaxer re the better the commutation rate the more realistic it is to take a maximum tax free lump sum. As I said in my earlier post a 12 to 1 rate means it is not worth taking anything other than the minimum lump sum. In my case, over 19 to 1 for the LGPS was very enticing to take max tax free lump sum
    • smjxm09
    • By smjxm09 10th Aug 18, 5:54 AM
    • 532 Posts
    • 147 Thanks
    smjxm09
    I can only comment on myself and many BT friends who have now retired. Most took the maximum lump sum as their view was that they had the money and BT did not, which might be a smart move if they were to die in the yearly years.

    I took the standard pension as the higher amount would increase more through compound annual rises. My FA confirmed that if he invested the extra cash he could not make up the difference in lost income from the lower pension so it all goes down to whether you want jam today to spend or jam tomorrow with with more monthly income that puts more pennies into your pocket each year as it started from a higher figure.

    I was always told that BT liked people to take the maximum lump sum as it reduced their future liabilities.
    Last edited by smjxm09; 10-08-2018 at 6:03 AM.
    • kidmugsy
    • By kidmugsy 10th Aug 18, 1:34 PM
    • 12,187 Posts
    • 8,632 Thanks
    kidmugsy
    I took max lump sum from my principal DB pension.

    (i) There were two "pushes", namely that I thought the management of the scheme was incompetent, and my health had been bad for a spell in middle age.

    (ii) There were debts that we'd always planned to clear using the TFLS.

    (iii) I took the insouciant attitude that of course I could invest the balance of the TFLS better than the scheme could. And so it proved.
    Free the dunston one next time too.
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