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Converting part of pension to increase lump sum

Discussion in 'Retirement' started by norcot, Oct 23, 2011.

  1. I've just started to fill out the application form to receive my pension and discover I can convert part of my annual pension in order to receive a bigger lump sum. It's a bit of a gamble - trying to weigh up how long I might live after retirement! Also have to factor in the rate of inflation which means pension increases are doing well at the moment. Are the government likely to stop pension increases being linked to the annual inflation rate?
  2. lindenlea

    lindenlea Star commenter

    I wouldn't be surprised if that link goes.
    I didn't know you could take cash out of the Teacher's Pension scheme. I wouldn't do it - I'd rather gamble on living to 103
    Do you need the cash for something specific. If you don't want to spend it, the alternatives are not that great - poor savings rates and very erratic values for equities - although you could pick up a cheap investment if you're really lucky. The TP gives the best return as far as I know.
    But if you talking about a private pension I might take as much cash as possible and just look for the best investment / saving account I could find ( or spend some of course - invest in your life why not!) The alternative would be an annuity and I believe they are not the best place to put your money if you have a choice.
    I wonder what other people think, it is a personal choice after all.
  3. The pension increases are in line with the rate of inflation. so in real terms the annual pension stays the same.
    If you take an extra £1200 lump sum you lose £100 a year pension. If you pay 20% tax then the loss is £80 a year. This would lead to a break even point after 15 years. You can ignore the increases in pension. If prices double in 15 years your pension will also double, but it will only be worth the same in terms of spending power.
    The Lib-Cons have got away with replacing RPI with the lower CPI to increase the pension, but I dont think they could stop the increases altogether.
    If you want the extra lump sum to spend or pay off loans you might as well take it. Otherwise just leave it as extra pension. If you want to make other people rich you could take the extra lump sum to invest or buy an annuity.
  4. Yes.

  5. As a matter of interest what percentage of your pension to expect to lose through ARB?
  6. You will lose 5% for every year early that you take it. So if you take ARB at 55 (5 years early) you will lose 25%. But don't forget that you will also be getting 75% for an extra 5 years. And you can do supply (if you can get any) whilst drawing an ARB.

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