Pension conundrum

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andya700

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Andy
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The first part of my working life was spent in local government, and I have received a letter from an authority advising me that my pension will be paid to me in less than a months time, when I reach the grand old age of 60. The only problem with this is that it isn't really a grand old age, and at the moment I cannot see me stopping work for a while yet. I have also been advised that I cannot defer this pension - it has to be taken now.
It isn't huge and I have two options -
Lump sum of £6K and £200 per month
Lump sum of £12K and £160 per month
The pension is index linked, so I am thinking about taking the larger lump sum (reduced monthly pension) and trying to make the money work for me. The problem is, that having worked mainly in finance, I tend to be quite cautious and prudent with money, and I am also thinking that £6K to £8K is not going to bring in much interest if invested in savings accounts/ISA's.
What to do?
 
neither amount is going to generate much interest either way with current interest rates.
I'm not sure of any specifics but you will be taxed on all income if you exceed the tax free threshold. for that reason alone it might be more cost effective to take the larger amount/lower pension. Financial advisor may be your best port of call. A guy that works for me has his part time wages paid into our company scheme and then plans to take it as a lump sum when finally retires to minimise tax when combined with his other pensions
 
simonkit said:
My advice for what its worth...

Speak to a reputable financial adviser and don't take advice off someone on a photography forum ;)

Simon
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Absolutely, but worth having ideas or other peoples experiences to discuss with an FA.
 
Bear in mind the pension paid monthly will be added to whatever money you currently earn and all will be taxed at whatever is the appropriate rate, so maybe taking the larger sum works better for you. Can you not transfer the monthly amount's value into another pension pot and thereby defer and grow (hopefully) until you retire, but I agree get professional advice on this as there are all sorts of rules regarding paying into/withdrawing money from pensions.
 
As has been said pay a few hundred quid and take independent financial advice but if you have a current pension plan it may be best to py it into that.
 
As above post you need to speak to an IFA, but I am surprised that they say you have to take it at 60, why do they not have a late retirement option.
 
*ugger it, Spend Spend Spend!
Advice I got was always take the higher lump sum because you probably won't live long enough to make the difference matter. Not sure how I feel about that tbh..
 
sep9001 said:
As above post you need to speak to an IFA, but I am surprised that they say you have to take it at 60, why do they not have a late retirement option.
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I am loathe to speak with an IFA, because we had a bad experience when we took out our mortgage.
The lack of option with regard to deferring the pension, is I believe based on when I took it out. I would much rather have let it mature.
 
andy700 said:
I am loathe to speak with an IFA, because we had a bad experience when we took out our mortgage.
The lack of option with regard to deferring the pension, is I believe based on when I took it out. I would much rather have let it mature.
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Andy I have an IFA I trust if you want his details. He's north of London so a personal visit might not work but maybe a quick call to see if he can suggest a way forward?
Matt
 
I would take the larger lump sum and then put the income into a personal pension and get the tax relief. Plenty of conservative funds to invest in. Also if you are currently employed your employer will have a scheme which you could pay into.
You could also chat to 2/3 IFA’s (and make sure they are independant and not just a financial advisor)- a first meeting is usually free and you can get an idea of how they are and then choose one. This isn’t a complicated issue so you may find you know what to do following an initial meeting or you have further meetings for a fee.
 
Buy some exotic lens or a special car and wait. Or get some workhorse kit and start a side business.

ISAs won't make much with such small amount; more likely to depreciate if anything.
 
could be worth asking your pension provider if you can transfer the value of the pot to another pension and avoid actually taking it.
 
I invest my own pension. It's currently running at a little under 8% pa with minimal effort but you need quite a bit more than 12k or a lot of it will get swallowed up in charges.

Personally, I'd sign up with LendInvest and hang about until you see a 6.5% or more return. You'll pay tax on the return but it beats most easy investments ATM. Alternatively, they may seem old school but premium bonds are a fun way to invest tax free.

But mainly, I wouldn't take financial advice off of strangers on the internet :D
 
Mr Bump said:
could be worth asking your pension provider if you can transfer the value of the pot to another pension and avoid actually taking it.
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I don’t think there is a pot as it sounds like a final salary scheme and with those amounts he would have to take compulsory advice from a qualified IFA at a fairly substantial cost (if he can find an IFA to do it)- in addition he would probably be mad to give up an indexed linked pension.
The LGPS of today allow members to retire at any age between 55 and 75- Are you sure you don’t have that option?
 
Craig1912 said:
I don’t think there is a pot as it sounds like a final salary scheme and with those amounts he would have to take compulsory advice from a qualified IFA at a fairly substantial cost (if he can find an IFA to do it)- in addition he would probably be mad to give up an indexed linked pension.
The LGPS of today allow members to retire at any age between 55 and 75- Are you sure you don’t have that option?
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I have been reading a bit more about this over the last couple of hours, and the LGPS changed from a final salary scheme to a career average scheme in 2014. However, as all my contributions and employment happened well before this date, I still have the final salary scheme rules applying. The pension is index linked, so I am definitely not going to give that up. I do not understand why I have to take this pension now though, given the flexibility of the 55 - 75 rule.
 
andy700 said:
I have been reading a bit more about this over the last couple of hours, and the LGPS changed from a final salary scheme to a career average scheme in 2014. However, as all my contributions and employment happened well before this date, I still have the final salary scheme rules applying. The pension is index linked, so I am definitely not going to give that up. I do not understand why I have to take this pension now though, given the flexibility of the 55 - 75 rule.
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Though not taking it yet.

I worked for the NHS for 7 years back in the 1970's and the then scheme (there have been three changes of scheme since then) says retirement age 60 (but no obligation to take it at age 60).

For the time I served the notes tell me that when I take it I will get a lump sum and a modest pension per year that will be a nice contribution to my overall pension arrangements when I "go for it". NB it is not a final salery scheme but an average of last three best years salary.......as I understand it.

IMO you should at the very least talk to the scheme administrators and then as appropriate an IFA. Good advice should pay you dividends in regard to your overall "position" not just in regard to this element!
 
andy700 said:
I am loathe to speak with an IFA, because we had a bad experience when we took out our mortgage.
The lack of option with regard to deferring the pension, is I believe based on when I took it out. I would much rather have let it mature.
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It has matured!
If you were still paying into it, you’d almost certainly have the option of carrying on paying in.

If this is money that’s come as a surprise and you don’t really ‘need’ it, then get advice re adding it to your current pension. But as above, you’ll probably find that taking the larger lump sum is your best option.

I’m gobsmacked that you’ve just heard someone wants to give you money, and your complaining about it. :thinking:
 
My 2p, I retired early at 42 and at that time figured I might manage to live a few years so I took the minimum lump sum to maximise my pension over the remaining years, my Ifa reckons I’ve actually done better out of it, poor returns on investments mean that I made the most of my good monthly income whilst still working elsewhere. Get advice from several independent financial advisers and pick the bones of the various suggestions?
 
andy700 said:
I am loathe to speak with an IFA, because we had a bad experience when we took out our mortgage.
The lack of option with regard to deferring the pension, is I believe based on when I took it out. I would much rather have let it mature.
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You have a final salary deferred pension, so as long as it has been accrued post 01/01/1985 is will revalue in deferment.

Generally scheme rules allow you to defer your pension, so no idea why this one says you are not allowed.

Have you asked them for the scheme rules and a reason as to why you cannot defer taking you benefits at a later date.
 
Buy premium bonds with it :)
 
sep9001 said:
You have a final salary deferred pension, so as long as it has been accrued post 01/01/1985 is will revalue in deferment.

Generally scheme rules allow you to defer your pension, so no idea why this one says you are not allowed.

Have you asked them for the scheme rules and a reason as to why you cannot defer taking you benefits at a later date.
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Just to add to this.
The public sector salary this pension is based on will increase at 1% pa during deferment (due to public sector pay cap) and in line with inflation if @andy700 takes it.
So he can defer it and watch it grow at 1% or take it and watch it grow at 4% ;)

Andy, if you have no use for it, pay it off your mortgage, and if you have no mortgage, look at a lifetime ISA, there’s still a couple of interesting deals.
 
Phil V said:
Just to add to this.
The public sector salary this pension is based on will increase at 1% pa during deferment (due to public sector pay cap) and in line with inflation if @andy700 takes it.
So he can defer it and watch it grow at 1% or take it and watch it grow at 4% ;)

Andy, if you have no use for it, pay it off your mortgage, and if you have no mortgage, look at a lifetime ISA, there’s still a couple of interesting deals.
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Cheers Phil, I have decided to take the lesser amount and have the maximum pension amount paid to me each month (Because of the index linked attraction). I have a few ideas regarding investing the lump sum.
 
I'm surprised they're forcing you to take your pension at 60. I also have a small LA pension, about the same as yours and I can leave mine until I'm 74 if I want
 
retire at 55 do it !
 
jakeblu said:
I'm surprised they're forcing you to take your pension at 60. I also have a small LA pension, about the same as yours and I can leave mine until I'm 74 if I want
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But as above, with the current public sector pay rises vs index linking - it makes more sense to take it as soon as you can.
 
JonathanRyan said:
I invest my own pension. It's currently running at a little under 8% pa with minimal effort but you need quite a bit more than 12k or a lot of it will get swallowed up in charges.

Personally, I'd sign up with LendInvest and hang about until you see a 6.5% or more return. You'll pay tax on the return but it beats most easy investments ATM. Alternatively, they may seem old school but premium bonds are a fun way to invest tax free.

But mainly, I wouldn't take financial advice off of strangers on the internet :D
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I got £30k of these years ago when that was the max you could have and before the way the payouts are done changed (twice?) I think you can buy more than that now but I haven't bothered getting any more as I think I'm right in saying that the chances of winning a large amount are reduced. I don't think that mine earn any more income than the money would in a bank account as the most I've ever won is £75 with the more usual being £25-50 which looks good for 30k but the monthly average is dragged down by the months I don't get a penny.

Personally I wouldn't advise anyone buy into premium bonds expecting an income or expecting them to perform better than a bank account, I personally think they're only worthwhile for the fun factor.
 
andy700 said:
Cheers Phil, I have decided to take the lesser amount and have the maximum pension amount paid to me each month (Because of the index linked attraction). I have a few ideas regarding investing the lump sum.
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Hi Andy

Bear in mind that the lump sum amounts will be tax free whereas the monthly pension will be taxed at whatever rate you’re currently paying. It doesn’t sound like your planning to retire any time soon so you are going to be paying an awful lot of tax on those monthly pension payments over the next few years. Of course it sounds attractive to have the index linking on a larger monthly pension but I’m guessing that’s probably around only around 3%, or something close, guaranteed for the first few years. You need to do the overall mathematics and balance everything out including an estimate for what you could additionally earn from re-investing the extra tax free amount if you went for the larger lump sum payment. My gut feeling is telling me that in the same situation and assuming that there is no possibility of deferrring then I would be going for the larger lump sum and looking for a decent way of reinvesting that money. (In my case that would probably be in the shape of a 500mm Nikon lens)
 
woof woof said:
Personally I wouldn't advise anyone buy into premium bonds expecting an income or expecting them to perform better than a bank account, I personally think they're only worthwhile for the fun factor.
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You're right of course - they are a bit of fun. Mine are currently returning an average of 1.8% per year (which is slightly higher than their predicted return of 1.4). That's not great but the best easy access account I can find pays 1.31 and of course premium bonds are tax free ;)

IMO they perform a bit better than a cash ISA with all the fun of "it could be you" and your money back when it isn't.
 
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