My wife is due to start her NHS pension and has the choice of exchanging some of her annual pension (which will be taxed at 20%) for an increased tax free lump sum. The conversion factor is 12 times. We do not need the additional lump sum and it would be invested in taxable deposit/investment accounts.
Background... other than this NHS pension and eventual 2 times state pension... everything else largely invested in equities (SIPPs, ISAs & taxable accounts).
Any comments/suggestions/factors for which is best option, much appreciated.
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NHS pension - increase tax free lump sum?
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- Lemon Quarter
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Re: NHS pension - increase tax free lump sum?
If you want to play with the maths, £800/year for life (after tax) or £12k now generating (say) 4% long term so £480pa seems like a long payback period, unless you get a 10% pension increase like last year.
But it sounds like you already have no use for the extra Lump Sum and adequate other assets, so unless you have a destination in mind (eg gifting to a child) or an expectation of a shorter life span then personally I'd be inclined to take the security of the extra index linked pension for the rest of her life.
That's what we did in the similar circumstances.
Paul
But it sounds like you already have no use for the extra Lump Sum and adequate other assets, so unless you have a destination in mind (eg gifting to a child) or an expectation of a shorter life span then personally I'd be inclined to take the security of the extra index linked pension for the rest of her life.
That's what we did in the similar circumstances.
Paul
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- Lemon Pip
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Re: NHS pension - increase tax free lump sum?
Thanks Paul - I have just though of another way of looking at this...
If I take the £12k lump sum and then try to buy an annuity in my wife's name (60) fully index-linked with 50% survivor pension -- then I am pretty sure that it will be a lot less than £800pa.
If I take the £12k lump sum and then try to buy an annuity in my wife's name (60) fully index-linked with 50% survivor pension -- then I am pretty sure that it will be a lot less than £800pa.
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- Lemon Half
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Re: NHS pension - increase tax free lump sum?
Your wife has earned a Defined Benefit Pension and you are thinking about exchanging a part of it for a commutation rate of 12 ?
"We do not need the additional lump sum and it would be invested in taxable deposit/investment accounts."
If you take the cash, can you get an investment return of 8.3%..safely....with (some/full?) indexation..and a 50% Joint Basis on death? I'd say unless your really really (2x) need the extra cash then do.not.do.it!
Most workers nowadays would love a defined benefit pension. To trade a chunk of it for a miserable commutation rate of 12..they are not doing you any favours!
edit: I'm going to go out on a limb here and say don't be mugged !
"We do not need the additional lump sum and it would be invested in taxable deposit/investment accounts."
If you take the cash, can you get an investment return of 8.3%..safely....with (some/full?) indexation..and a 50% Joint Basis on death? I'd say unless your really really (2x) need the extra cash then do.not.do.it!
Most workers nowadays would love a defined benefit pension. To trade a chunk of it for a miserable commutation rate of 12..they are not doing you any favours!
edit: I'm going to go out on a limb here and say don't be mugged !
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