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Its not a humble brag and i appreciate its a very first world problem, but here goes....
Im aware that my pension will be more than some people, including family members and friends earn, working full time.
Im 55 yrs old v soon. That means i can retire should i wish. Im definately going to retire, but i have a bit of a dilemma.
My pension will start being paid straight away and its index linked. Its linked to whatevr is the lower, CPI or PRi, i cant remember which.
The long and short is do i take a lump sum or not, as this alters my monthly income.
The figures are c.£1700pcm after tax, or £1340pcm after tax and a lump sum of c.£120k The higher figure is more than i currently live on after my mortgaga and a small loan that finish in a month.
Disregarding index linking, the difference will mean around 24yrs of the higher sum to net the lump sum equivalent. That means i will be 79 before the higher monthly pension seems better.
I have a daughter at University who i have saved enough to support for her next 18 months until she qualifies as a Dr. This wont come from my monthly income. My mortgage will be finished and we would like to do some remedial work to the house. Id like to buy a van and convert for me and MrsB to travel and ride bikes/surf/kitesurf in cool locations.
As im 55 i realise that the sun is setting on me and that my best years are behind me. The adventures i want to have need to be done before i get too frail and want cocoa and slippers.
So, what would you do and why? Anyone been in this situation and can say they did it right or wrong?
thanks
Ian
Lump sum.
Enjoy it, anything might happen. Not point being the richest bloke I the cemetery
.
My father did similar at the same age, 55. Bought a small racing boat and a classic car. The former has barely depreciated and the latter has appreciated. His remaining pension has barely recovered to pre 2008 crash levels, he wishes he had taken more.
Also the boat and car are fun.
I have nothing specific to say but the tax free lump sum is generally supposed to one of the major benefits of a pension.
Take the lump sum and
buy a van and convert for me and MrsB to travel and ride bikes/surf/kitesurf in cool locations.
No time like the present! (Once things are normal-ish).
EDIT: but don't kitesurf (so last decade) all the cool guys* are wingfoiling now
*me included B-)
No brainer - lump sum, you get way more out of your pension pot that way.
Plus you never know how the future will pan out - enjoy the fruits of your labour.
I’m not there yet but will be in the same position in a few years. Lump sum is definitely the way to go in my opinion.
lump sum def, go and enjoy yourself.
andrewh
Free Member
Lump sum.
Enjoy it, anything might happen. Not point being the richest bloke I the cemetery
try telling that to Italians - plain weird they do think its worth something..
Also it sounds like you will have a great retirement - enjoy!
I would take the lump sum as it is tax free then invest it over time in an ISA. Invest your ISA money in whatever funds/investments you choose then you can take income from that as and when you choose and it can be used to top up your pension income which is taxable above your basic rate. You have the benefit of the money going into your pension tax free but you can reduce the amount of tax you pay when you take it out. It does depend on the specifics of your pension however.
Taking the lump sum does not mean you have to spend it so taking it can be a savvy decision. Of course you may want to spend it all and thats up to you but its not compulsory.
Absolute no brainer surely? Lump sum, sweet campervan, tighten belt ever so slightly if that’s even necessary?
Lump sum, definitely. Bear in mind that at 67 you will also get the state OAP, so another £100-£145 pw after tax.
I'm 53 so a couple of years away and looking at a generous final salary pension. I've heard of too many lads at work finishing early and not lasting that long so for me lump sum all the way. My mum has a council pension and two of my late dads pensions but with copd never spends any of it. She's in her mid 70's and doesn't need it. Get it now while your young and relativly fit.
Lump sum, definitely. Bear in mind that at 67 you will also get the state OAP, so another £100-£145 pw after tax.
I was about to make the same point.
Yes. I am 56 and I factor the state pension kicking in so your are really thinking about the next 10-12 years before you get quite a large chunk coming in on top
Lump sum and enjoy life, with it sat in an ISA or something to give a small return on & that you can just grab as you need it.
The lump sum is tax free (up to 25% of total pot) so a no brainer.
Lump sum as the inevitable may come sooner than we hope.
On the other hand if your pension pot increases in value, that 25% tax free lump sum also increases in value. I have taken a lump sum but not up to the full 25%. How will it pan out ultimately? Who knows?
Brilliant choice to have. If it were me I would look at the ages of my parents, any known health issues in the blood line and whether 120k in today's money would make any difference. That higher monthly pension is v tempting but up to you of course.
Enjoy your retirement, I can't wait.
Still got a fair few years of working having not had spare money to put into a pension but just here to thank Surfer for his input about taking lump sum to limit tax liability 👍 although I doubt I'll pass my personal allowance even with state pension ☹️
I had the similar decision to make four years ago, although the sums involved were considerably lower than your projections. With an actuarially reduced monthly income because I was taking it at 55 rather than 60 I calculated that if I live beyond 73 then I would be losing out compared to waiting, however for many reasons I decided to take it and the minimum allowable lump sum as the income was enough to top up my part time work (in a completely different field) and a substantial portion of the lump sum was very helpful with a project we were working on. I have no regrets at all.
Surely your 24 years assumption assumes that you spend all that 120k, invest or get return on none of it etc? As above though, you're a long time dead get it done now.
Lump sum. I’m in a slightly different situation and just about to do a transfer from DB into a SIPP as my medical situation is a bit complicated. Not serious enough to stop me having a bloody good time for a few years as soon as we are able to and at least I can pass the dregs on.
In your position I'd take the lump sum.
One way to look at it is that's an extra 10k tax free per year ontop of your pension for the next 12 years and in 12 years time your state pension will kick in which is currently 9k ish per year. There'll be a small hit with income tax when the state pension kicks in.
Good luck and enjoy your retirement 👍
OP are you fire service?
I took lump sum with max commutation paid tax on this with a smaller annual pension. I worked out for me that best option.
Tax on monthly pension took a while to sort as HMRC were under some impression that my lump sum was now my monthly pay 😁
i will be 79 before the higher monthly pension seems better.
Bear in mind when you're 79 will you actually need the extra from the higher pension? Take the lump sum now and enjoy while you can. You might just have to forgo a few packets of Werthers
I’ve heard of too many lads at work finishing early and not lasting that long
Are these they type who live to work? No outside interests so suddenly they have this big void.
I'd drop work like a shot if I could.
Most people in know these days seem to be taking the lot and self investing. That way when you die you have the whole pension pot to leave in your will and you can front end load the pension pot more than limitations on lump sums...whats the point in having a decent income when you're a 90 year old senile dribbling mess in the corner of a nursing home? You want it front end loaded to enjoy while you're still young and fit enough to do so. So think that is where I'll be when the time comes. But if I were to take the pension then yes, I'd max out on lump sum....but of course always take professional financial advice!
Tax on monthly pension took a while to sort as HMRC were under some impression that my lump sum was now my monthly pay 😁
That's quite common- think I've seen advice that suggests you take a small amount out first to prevent HMRC getting all grabby.
Lump Sum all the way.
I'm 20 years behind you but have opted to stay in a more expensive pension scheme because it allows retirement at 55 where as its replacement scheme did was state age.
Lump sum 100%.
You are still at liberty to invest it back into the same funds your pension is in, or any other funds so you don’t miss out on growth. But you have access to the cash if you need it.
Plus, what happens to your pension if you die unexpectedly? Dependants normally get a percentage of a direct benefit pension but would get 100% of the lump sum if you had taken it it.
Lump sum. I transferred my DB pension into a SIPP to allow me to take a bigger lump sum when I go at 55.
Better to spend more when you are younger than have too much when you are older.
24 years crossover point I would take the lump
i am retiring at 60 in a few weeks ( on a much smaller pension) I get an option of a small lump and a bigger monthly pension or a big lump and a smaller monthly pension. the crossover point is 16 years so i went for the big monthly amount small lump
If you go at 55 keep an eye on your NI payments, keep them topped up until you have the requisite years for full state pension
If you go at 55 keep an eye on your NI payments, keep them topped up until you have the requisite years for full state pension
+1. I have been doing so as registered self employed with HMRC with my part time job. Easy to do during self assessment. I need three more years contributions for full amount (unless they change the qualifying years , again)
all, thanks for your input.
It seems like the lump sum is the way to go
I will take some advice about putting it in ISA with the option to get hold of it for fun
I'd pay a lump sum to retire at 55!!!
i was offered a slightly smaller lump sum on mine as will be 55 next month, however I won't be retiring for probably another 5 yrs plus. It is attractive though tax hammering appears significant, and ongoing contribution level would be held down significantly..
The government pension advisory service will offer free advice also - worth setting up an appointment with them.
Good point 're maxing out state pension via voluntary contributions. I do that and am currently just 2 short.
I think someone on here posted the payback of each year a while ago, I think the last gap year I bought was c 700 for an uplift of c 225pa, so only 3 years of pension you get your money back.
Sorry may be wrong on actual numbers but it's deffo less than 5 year payback.
Just going through the same process as the OP and already consulted two pension advisors, they both said the same......go for the big lump sum rather than the higher monthly payments.
Next question is what to do with it as returns are so poor currently but realistically not that many options.
I’m not there yet but will be in the same position in a few years. Lump sum is definitely the way to go in my opinion.
I'm hoping they still allow it (tax free) by the time I hit 55! Will be gutted if it goes in the next few years...
Next question is what to do with it as returns are so poor currently but realistically not that many options.
My plan is just to re-invest in stocks and shares and try and grow it modestly. Spread over a wide range on investments, it will be fairly insulated from anything other than big crashes etc (which always recover eventually).
I am in the fortunate position of having a preserved military final salary from the RAF at 60, and a defined contribution scheme from my second career in the airlines.
The pension freedoms these days are quite liberating with how I can handle my cash pot. Annuity rates are at an all time low, but I can keep my pot invested post retirement and draw it down as required. I no longer need to retreat into bonds and gilts 5 years before retirement fearing a crash. My mortgage pays of at 58, and by 60 my youngest will be 27.
Having been a higher rate tax payer, the 25% tax free cash lump sum on retirement works well for me. Like someone mentions earlier from their parents, mine will be paying for a boating adventure!
Long time off retiring as I have a nine year old but when the time comes we'll both take ours, buy a nice campervan, live of it as long possible before drawing down the rest. Annuities make no sense it a world were intesrt rates are negative
As im 55 i realise that the sun is setting on me and that my best years are behind me.
Are they though? Depends how you define best. I retired 4 years ago at 52. In terms of, say, peak fitness yes my best years are behind me. In terms of enjoying life I'm almost certainly living the best years of my life at the moment. Suspect the same may potentially be the same for you. Take the lump sum and enjoy life. Have adventures.