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Lump Sum or not?

Discussion in 'Retirement' started by plot71, Feb 8, 2016.

  1. plot71

    plot71 New commenter

    Hi, I would appreciate advice please since after 35 years and 60th, the just met retirement option is drilling in to me. I am thinking to take the retirement next year from September (for the school to get a replacement) and not take the lump sum but instead, have an enhanced pension which would make the long term more acceptable. What views do you have for or against this?
    I know the pension calculation is based on maximum survival at 85 years (all my family have resolutely survived going just before the Queen sends her telegram) which is quite a long stretch.
  2. Guest

    Guest Guest

    If you were a member of the scheme before 2007 your only option is to take the lump sum of 3 times the pension. You can also maximise it and have less pension. However I do not believe you can take no lump sum at all and have a bigger pension. Only those joining the scheme after 2007 do not have an automatic lump sum but can elect to convert some pension to create one. However their normal retirement age was raised to 65. After 35 years your pension amount should be fine and the lump sum a great bonus. Retire and enjoy!! Do not forget your state pension also kicks in at 65/66.
    plot71 likes this.
  3. FrankWolley

    FrankWolley Star commenter

    If you have a mortgage to pay off, or family you wish to help, or something you wish to buy (holiday home, yacht etc.!), then I'd maximise your lump sum. It is, after all, tax free (whereas you pay tax on your pension).

    It all depends on your circumstances!
    plot71 and wanet like this.
  4. wanet

    wanet Star commenter

    Good luck with whatever you decide. i put the numbers into a spreadsheet to help me decide. Trouble is there are unknowns. Just make the best decision that you can.
    plot71 likes this.
  5. SGreen9

    SGreen9 New commenter

    that's useful, I didn't know the lump sum was tax free
    I have been offered VR and at 62 (but a late entrant to teaching) am seriously thinking about it but have a quite large mortgage to pay off so knowing my lump sum is tax free was very interesting
  6. wanet

    wanet Star commenter

    If you haven't already done so, you really need to registar on the TPS website and study all of the information on there.
    FrankWolley likes this.
  7. plot71

    plot71 New commenter

    Thank you for the really great advice which really triggers emotions of diving into a swimming pool with probably warm rather than cold water. An accountant friend suggested that I kept the mortgage, rented the house out and went travelling, or was that just nice way to tell me to go away? hmm... A seemingly good pension now probably won't be in 25 years time I fear, Do you think that maximising the cash option now would be a wise option as 12% of us are likely to live beyond 85 which is the pension life expectancy optimum calculation of old?
  8. aspen_1

    aspen_1 New commenter

    I think it depends on how much you need the cash straight away. I worked out that if you live until your mid 70s you would then begin to lose out by maximising the lump sum at the expense of the ongoing pension you take.

    Obviously you would need to check this and to take advice, not from me, but from the TPS.
  9. lindenlea

    lindenlea Star commenter

    Why not?
    My father's index linked pension retained a good value into his very old age.
    Of course, some future govt might clobber such pensions, but otherwise, it should be OK.
  10. Piranha

    Piranha Star commenter

    It probably will - TPS is index linked so it will rise.

    It is impossible to advise you on the pros and cons of cash now versus higher pension without detailed knowledge of your personal situation and your own hopes. It is not just a question of which route maximises your total income but on what the money is worth to you when you get it (sometimes called utility value). I think it sensible to ensure that your pension is enough for you to live on so that you are not troubled by financial worries in your 80s. However, your ability to enjoy your money then is likely to be reduced by the effect of aging, so having cash to do what you want while you can is attractive. I am thinking of my own mother, who is now unable to go on the holidays she used to enjoy, or go ou,t or even buy things she would like to use.

    Another complication is any care you may need. Having a higher income when you are older may allow you to pay for help at home or enter a better care home (horrible thought I know, but it is something to consider). However, if you do not have enough to pay for your care, the state will take up the slack, and extra pension could just mean that you pay more and the state pays less. It also depends on whether you are concerned about what you leave when you die - if it is not an issue, then you can sell your home to pay for better care.

    If it were my decision, I would take cash I need now, ensure that I have enough for living costs and emergencies in the future and then, as far as possible, take more cash now and use it for what I want. Don't worry about calculating what life span makes each decision best - yiou have no idea what yours will be.
    plot71 and wanet like this.
  11. jacob

    jacob Lead commenter

    Just because your family members have staggered on to nearly 100 does not mean you will. There are "chances" that might take you out besides ill health: very low risk ones like lightning strike, or higher risk like car crash. You cannot assume you will live forever. As the pension is index linked it should stay in line with inflation, also you should get State Pension at their retirement age. Take the lump sum and spend it of loose cars and fast women.
    plot71 and wanet like this.
  12. plot71

    plot71 New commenter

    Thank you all for great advice which after also seeing other friends already retired, I'm off to join them from September as I couldn't face dumping stressed colleagues be leaving at Easter. I'll return 2 days a week for a year until daughter hits 18 then rent out the house and holiday for a year. I think having a break in contract will permit taking the full pension and cash straight away. I don't really wish to live the age of my parents, as it didn't seem much fun in the final years.
  13. applecrumblebumble

    applecrumblebumble Lead commenter

    First priority is always to pay off debt - usually higher interest than savings. Certainly if you can afford it let the pension date reach maturity and collect the benefits fully. If your desire is to holiday for the year then your plan to rent out the home would allow you to do that. I have generally holidayed throughout the year (about 4 times a year). Holiday while you can and enjoy yourself - best wishes
    plot71 and eljefeb90 like this.
  14. plot71

    plot71 New commenter

    Thanks that's really good advice. A friends accountant suggested that I keep the mortgage debt to help service tax advantages but not to spend out so that I can pay it all off when I need to. Meanwhile, having the cash to support other expenses if needed (hopefully not). However, dumping debt is always good I think too.
  15. applecrumblebumble

    applecrumblebumble Lead commenter

    Obviously I do not know your tax situation but in my book mortgage at say 5% interest (mine was 2.5%) and savings at 3% means debt is better rid of than keeping a mortgage. I understand the idea of cash flow but no mortgage payment means better cash flow as well. Everyone financial situation is different and keeping lump sum for rainy day is very sensible.
    wanet likes this.
  16. plot71

    plot71 New commenter

    Wise view, thank you applecrumblebumble. There goes ideas of a Lamborghini, but they don't do an estate version any way. The mortgage remains the millstone as ever I guess and best paid off earlier than later as you suggest.
  17. gymjack

    gymjack New commenter

    You have to take the lump sum it's not an option. The option is maximum or minimum.
    plot71 likes this.
  18. plot71

    plot71 New commenter

    Thank you all, as ever fantastically insightful info. I go for a chat about my option Wednesday morning first thing. Quite looking forward to the occasion now.

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