Pension payment choice

[fourtwentyfour]

I am 71 with some savings and a state pension.

I have to choose an option for a company pension. It can be a small monthly amount, or less with a lump sum, I think. It is a little confusing. Given supposed high charges for advice on these small amounts my feeling is to take the highest monthly amount and no lump sum. Is this sensible*, or should I pay for advice, and if so how to find someone suitable.

*Is there more to this than consideration of the cash and lump sum, such as taxation, or are the amounts too small for this to be an issue?

Thanks

[JohnB]

You need to provide more details.

[DrFfybes]

Consider the lump sum as an 'advance' on your pension. Effectively a 'loan' that you are paying back for the rest of your life. If you live a long time, you pay more back. If you have an immediate need or use for the lump sum, then this will impact your decision.

There will be a conversion factor for the lump sum into pension, so you get (say) a £12 lump sum in return for £1 per year less pension. In that case it would appear to be be 12 years until the breakeven. However, the pension will probably be linked to some sort of inflation index, and the lump sum obviously isn't.

Factors that affect your decision include....
the conversion factor - how long until I am in net loss. This is also affected by inflation on the pension.
Your health, your life expectancy.
Will the pension pay a spouse pension? - if so then this increases the chances of one of you surviving past the breakeven date and paying more back than you gain.
Do you have any debts? If you are paying high interest on a credit card or similar then taking a lump sum might help.
Do you want to give it to your (grand)children? Do they need a house deposit, etc. Otherwise you coould take the higher pension and gift it to them each month as a gift from surrplus income.

Then there's all sorts of tax implications, will the extra pension take you into a higher tax bracket, are you nearing the IHT threshold?

You need to provide more details.

Yup

[fourtwentyfour]

Thank you. I am a little reluctant to give too much information here, however...

I have no spouse, only a cat, no debts, some savings, and an income of less than 900 pm. Health fairly good, expect to live around 20 years or so more, break even 13 years ahead. Looks as if expected pension is 300pm, no lump sum, or less plus lump sum.

I suppose my questions are what is the cost of advice, and is it justified by the small amounts involved? If I don't need capital is it a matter of maximising income, would that be a standard answer?

Thanks

[swill453]

I suppose my questions are what is the cost of advice, and is it justified by the small amounts involved? If I don't need capital is it a matter of maximising income, would that be a standard answer?

Not necessarily. The sort of thing that would be useful for you to know is whether the lump sum would be tax-free, as opposed to the income being taxable.

Scott.

[mc2fool]

Thank you. I am a little reluctant to give too much information here, however...

Part of the reason folks are asking for extra details is that the options you have can vary depending on a number of factors.

First and foremost, is this a defined benefit (final salary) pension or a defined contribution one? (Sounds like DB, but please confirm). And why have you waited to 71 before thinking about drawing it?

There's a pile of useful information, including free generic advice by phone, webchat, online form, etc, at https://www.moneyhelper.org.uk/en/pensions-and-retirement. Note that the free Pension Wise appointment, which will look at and give you advice specific to your situation, is only available to those with a defined contribution scheme.

If it is a DB scheme then you could possibly transfer it out to a DC scheme (e.g. a SIPP), and then you will have total freedom as to how much you draw out and when. However, if it has a CETV (cash equivalent transfer value) of more than £30,000 them you must get advice before doing so, and as you note, that won't come cheap. I take it you haven't got a CETV from your pension, but at £300pm I expect it will be more than £30K. (Don't casually ask for one straight off, as most schemes only allow you one per year for free; find out if that's the case first.)

[fourtwentyfour]

Ok, thanks. I thought the pension was so small it wasn’t worth the cost and effort of going too deeply into it, but we live and learn! I seem to be wrong.

I did once contact Pension Wise, but they were not able to help, maybe because it is a defined benefit pension.

As to why I have left it so long, I have been a carer during the time and other people’s affairs got more attention. The paperwork was complex and I didn’t have the time to study it, so it was left until later... time went on... Anyway, now, after recent deaths, I am able to try to focus on my stuff. And there’s a lot to sort out.

I will try to figure out what choices I have, and what questions I need answers to, and then I’ll find an advisor.

Thanks for the help.