my husband is about to retire, is it best to take a lump sum and lower pension?
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879MikeGG1 postedIs this a Final Salary (Defined Benefit) pension or a Money Purchase (Defined Contribution) pension? If it is Money Purchase then take the cash because it is tax free.
If it is Final Salary, divide the cash sum by the pension surrendered and tell us the result. Also say what guaranteed increases are built into the pension and whether spouse's benefit is also surrendered. His age at retirement is also needed aqs his his top tax rate once retired
Although there is a tax advantage for taking cash, many Final Salary schemes do not give full value for money on pension surrendered. The rates are often years out of date and the factors could date back to 1970 and/or ignore the increases.
Mike
Posted on 20 April 2012 |
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879MikeGG1 posted
As previously requested, we would need his age at retirement, the rate of escalation of pension and whether spouse's benefit is reduced by the cash, plus his top tax rate after he retires (that could be lower than he is currently on)..
Mike
Posted on 20 April 2012 | Love 0 loves
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879MikeGG1 posted
You still haven't said whether any spouse's pension would be lost as a result of taking the cash.
On the assumption that it isn't, the conversion factor is 19:1 and some pension would be at 40% and some at 20%, so if the average was 30%, the conversion factor would effectively be 19/0.7=27.14.
You can do your own calculation if you can work out your actual average.
Currently the cost of a single life pension for a Male 62 increasing at RPI would be about 30:1 but RPI would be more expensive than CPI.
However, some cash could be very handy.
Mike
Posted on 21 April 2012 | Love 0 loves
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38OorWullie posted
Not having the mind of a banker, mathematician, nor actuary, it seemed to me that offers like this are obviously a gamble as it would depend on how long one might live but as the extra cash was needed I opted for the lump sum. Now 25 years later I think the choice was the right one yet, paradoxically, I have no way of actually knowing. Maybe it was not the right option, however, ignorance is, indeed, bliss!
Posted on 21 April 2012 | Love 0 loves
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