One of the maths boffins, IFAs, Actuaries etc -

[IanM]

I have a company pension which I will begin drawing in 3 years, when I am 60. Will be enough to live on (I hope!) and I have cover from now till then....

If you take part of it in cash, the monthly payment drops by an amount it will take 19 years to recover.... No idea if I will live to 79! None of my grandads did, nor did my dad! So, notwithstanding that unknown variable... what to do about option?

Normally I'd say "cash today" is a no brainer...

BUT - with interest rates at virtually "nowt" the potential for higher inflation, equities being a risky as heck and the actual pension payments being "index linked!" I wonder if the usual picture is a clear as it might have been a couple of years ago. I've got some savings, so no major impetrative to take the cash. Never mind about amounts, just discussing issues, within the boundaries of Compliance!

So, what am I missing? What would you do?

 

[SatchFan]

I started drawing my pension at 55 and took the maximum tax-free lump sum. My wife and I like our foreign holidays so would rather have the money to spend now while we are still able/willing to travel. Also a safeguard should anything happen to me. We also factored in state pensions kicking in at some point so again that's another boost. After covering all the bills it just depends on what you actually want to do in retirement and we figured that if we live to a ripe old age then our spending will reduce anyway.

 

[bobmac]

I think Richart is a bit of a financial expert, he might be able to help.

 

[NearHull]

In 2015, I took my company pension into Drawdown and invested with a large investment company in a wide balance of funds. Over the past 5 years it has returned circa 4 to 6% each year and has had significant value growth. This year it is on track to return 3.5%. I took independent financial advice that cost £2k which, I thought was a bit steep at the time. But it has been a great investment!
It’s certainly worth looking at IFA.

 

[Billysboots]

I have a company pension which I will begin drawing in 3 years, when I am 60. Will be enough to live on (I hope!) and I have cover from now till then....

If you take part of it in cash, the monthly payment drops by an amount it will take 19 years to recover.... No idea if I will live to 79! None of my grandads did, nor did my dad! So, notwithstanding that unknown variable... what to do about option?

Normally I'd say "cash today" is a no brainer...

BUT - with interest rates at virtually "nowt" the potential for higher inflation, equities being a risky as heck and the actual pension payments being "index linked!" I wonder if the usual picture is a clear as it might have been a couple of years ago. I've got some savings, so no major impetrative to take the cash. Never mind about amounts, just discussing issues, within the boundaries of Compliance!

So, what am I missing? What would you do?

I’m having to make exactly the same choice at the moment and, for me, it’s an absolute no brainier.

I’m on a 2/3 final salary pension and have a choice of reducing that to 1/2 by taking a considerable lump sum. There’s a sliding scale in between - the more I commute, the less pension I receive.

The issue is provision for my wife and kids. Regardless of what I decide to do, if I pop my clogs the day after I retire her widow’s pension is exactly the same. In short, if I take no lump sum and immediately snuff it she doesn’t see a penny of a decent chunk of cash.

Not a risk I really want to take, so decision made.

 

[IanM]

....good call about the "what if I snuff it tomorrow" angle Billy! Better check the terms of that... will override much of my original post. No kids here, but Donna will be looking to keep all the local Garden Centre Owners and "Green Lamb" solvent after I am gone!

I have a meeting with my IFA after Christmas, but I am just getting my head round what to tell my clients about me packing it all in. I was going to drop to 3 days pw after Xmas, but am more inclined to carry on and stop completely at the end of March.

 

[Backache]

Average life expectancy for a male age 60 is 85 and you have about a 70% chance of making 79 according to the government calculator.
https://www.ons.gov.uk/peoplepopula.../articles/lifeexpectancycalculator/2019-06-07
Because these are skewed by people with very short life expectancies if you are currently in reasonable health your personal life expectancy is probably longer.
In a low interest environment with likely concomitant reduced return on equities and a government that may have to inflate away debt. For me it's a no brainer to go with the income particularly if you have other savings.

 

[IanM]

Interesting last sentence...hard to argue with. I also have 3 years to make the decision..

 

[SwingsitlikeHogan]

A couple of years ago I converted a 'final salary' pension I had from my first job into an investment. It was a pretty decent FS annual pension and so required a lot of thought and advice.

My Financial Adviser was very rigorous around the rationale for us doing this, and indeed would not have 'allowed' me to do it if he and his company did not think it was an appropriate and understandable course of action - it was subject to very significant analysis and review.

However, with my wife in remission with breast cancer we did it for 'live today' - we don't know what is round the corner of tomorrow - reasons. By taking the full 25% tax free amount and with other funds we had, we were able to completely clear all of our debts - including our still large mortgage. As my wife's pension covered all of our remaining fixed bills (and our Financial Advisor again only supported my decision on the grounds that we had my wife's NHS pension to cover our bills) doing this gave us the total freedom from work to be able to do whatever we chose. And we chose for me to take 6months off work unpaid to travel - and we did that - travelling for over 4months.

My wife remains in remission - and given the state of the world today with the restrictions and risk relating to travel we are very grateful that we made the decision we did on my FS pension. Pension income wise we may be a bit worse off in the long run - who knows what will happen to my converted pension investments - but what price and value the travel experiences we enjoyed.

And of course with no debts I can - like you - look to reduce my working week this coming year - or indeed simply knock it all on the head and hang up my boots. Our income might not be great - but life is for living - and if things get too tough financially we own outright a house in a nice town in Surrey - not far from Guildford...and we don't have to live here

 

[Billysboots]

Average life expectancy for a male age 60 is 85 and you have about a 70% chance of making 79 according to the government calculator.
https://www.ons.gov.uk/peoplepopula.../articles/lifeexpectancycalculator/2019-06-07
Because these are skewed by people with very short life expectancies if you are currently in reasonable health your personal life expectancy is probably longer.
In a low interest environment with likely concomitant reduced return on equities and a government that may have to inflate away debt. For me it's a no brainer to go with the income particularly if you have other savings.

If it was just me I probably wouldn’t take the lump sum, as I’m investing a big chunk of it. But I’m more comfortable with that sum being under my control than running the risk of my wife not seeing any of it should my past love of takeaways, beer, fags (thankfully long since left behind) and 30 years of shift work catch up with me!

 

[Backache]

If it was just me I probably wouldn’t take the lump sum, as I’m investing a big chunk of it. But I’m more comfortable with that sum being under my control than running the risk of my wife not seeing any of it should my past love of takeaways, beer, fags (thankfully long since left behind) and 30 years of shift work catch up with me!

Sure and I'm not trying to say what anyone should do, but I have recently had to make the same decision and after looking at it quite carefully my wife and I came to that decision, she will lose out a bit if I die early (Though in my case she will be entitled to half my pension should I die early)But our combined income is assured for longer.
As it is I'm still working but have gone part timeand am drawing pension for the rest.

 

[IanM]

And of course with no debts I can - like you - look to reduce my working week this coming year - or indeed simply knock it all on the head and hang up my boots. Our income might not be great - but life is for living - and if things get too tough financially we own outright a house in a nice town in Surrey - not far from Guildford...and we don't have to live here

No one ever died and said "I wish I'd spent more time in the office!" ...except my current Boss, he will! My current contract (and some sensible living) enabled me to be debt free now so have a bit more flexibility. If I pack in work someone who really needs the job can have it!

Life is indeed for living... my Mum in Law is still in Elstead... will have sort a game at Farnham some day!

 

[SwingsitlikeHogan]

As it happens when it came to my wife's NHS pension we looked at the annual pension / lump sum balance and she decided to maximise the lump sum. Obviously one aspect was health-related - as had been discussed - the annual pension goes when you go and the difference in benefit I would get was pretty insignificant. Plus when we looked at the monthly pension amount she decided quite simply that, with the maximum pension, the additional monthly amount was not significant and would not provide the sort of short term benefits that the maximum lump sum could provide. And in her circumstances she feels there is little point in looking long term - if there is a long term for her - and that is very far from certain - then she will be more than delighted to still be with us

 

[SwingsitlikeHogan]

No one ever died and said "I wish I'd spent more time in the office!" ...except my current Boss, he will! My current contract (and some sensible living) enabled me to be debt free now so have a bit more flexibility. If I pack in work someone who really needs the job can have it!

Life is indeed for living... my Mum in Law is still in Elstead... will have sort a game at Farnham some day!

We will indeed - that would be good...

I'm trying to persuade my company that they don't need oldies such as I filling a role that could be taken by some thrusting and ambitious youngster (none of which describe me )

 

[Blue in Munich]

I’m having to make exactly the same choice at the moment and, for me, it’s an absolute no brainier.

I’m on a 2/3 final salary pension and have a choice of reducing that to 1/2 by taking a considerable lump sum. There’s a sliding scale in between - the more I commute, the less pension I receive.

The issue is provision for my wife and kids. Regardless of what I decide to do, if I pop my clogs the day after I retire her widow’s pension is exactly the same. In short, if I take no lump sum and immediately snuff it she doesn’t see a penny of a decent chunk of cash.

Not a risk I really want to take, so decision made.

One other thing to consider is this; are you retiring, or starting a second career? Because if it's the latter, then taking the money & reducing the pension income decreases the likelihood of your second income hitting the 40% tax bracket. Not necessarily pertinent if you've made the decision, but something to think about.

Personally I took every bit of cash out of them that I could. We calculated that we'd start seeing a loss on that decision when I hit 79, if I hit 79. As you say, it's absolute no brainer.

 

[backwoodsman]

Question: Is the pension you'll eventually get, index inked? If yes, then the the value of the pension will rise in line with the index - which is likely to be better than what a withdrawn lump sum would get under current, crappy, interest rates. Unless you bung it into investment funds - for which you need IFA

 

[Billysboots]

One other thing to consider is this; are you retiring, or starting a second career? Because if it's the latter, then taking the money & reducing the pension income decreases the likelihood of your second income hitting the 40% tax bracket. Not necessarily pertinent if you've made the decision, but something to think about.

Personally I took every bit of cash out of them that I could. We calculated that we'd start seeing a loss on that decision when I hit 79, if I hit 79. As you say, it's absolute no brainer.

I think in nearly thirty years I can count the number in our job who didn’t take the full lump sum on the fingers of one hand.

It’s about being sensible. I’m lucky in that I don’t need much of it now. But I am taking advice on investment because I don’t want to see the unused amount diminish in value. Given where we are with inflation and interest rates it’ll do just that unless it’s invested wisely.

It’s a very strange feeling approaching that time when that sum will hit my bank account because all of a sudden I’m really having to think about what I do with it.

I don’t want a second career, and I was refreshingly blunt when asked by my IFA last week what I wanted to do. I simply told him once I have settled the few small commitments I have got, and shaved a chunk off my monthly outgoings in the process, I want to close the gap between salary and pension as much as possible. My aim is to achieve financial parity as best I can with where I am now, whilst doing as little work as possible to get there.

Well, we can all dream.......

 

[jim8flog]

I see it two ways essentially

What do you need the most - income or cash/ accessability to cash

Which will give you want in retirement a reasonable daily/monthly lifestyle

or are you gong to need cash for holidays new cars etc and do you need cash to clear existing debts.

If you own your own home there is always equity release if you need cash in the future.

Always remember what they say 'value of investments can go up or down' so you must be prepared for time to time dips and not panic when it happens.

 

[SwingsitlikeHogan]

I see it two ways essentially

What do you need the most - income or cash/ accessability to cash

Which will give you want in retirement a reasonable daily/monthly lifestyle

or are you gong to need cash for holidays new cars etc and do you need cash to clear existing debts.

If you own your own home there is always equity release if you need cash in the future.

Always remember what they say 'value of investments can go up or down' so you must be prepared for time to time dips and not panic when it happens.

...and as other will attest to - the crash in my Drawdown fund back March/April was grim - though not as bad as many as I'm a low risk investor - but in truth it still 'only' amount to a few thousand a year under a typical drawdown % (and if I was drawing down we would still have coped). It has since climbed back to pretty much where it was at the start of the year - but the experience of this year has certainly reminded me of this...if I ever needed reminding.

 

[Blue in Munich]

I think in nearly thirty years I can count the number in our job who didn’t take the full lump sum on the fingers of one hand.

It’s about being sensible. I’m lucky in that I don’t need much of it now. But I am taking advice on investment because I don’t want to see the unused amount diminish in value. Given where we are with inflation and interest rates it’ll do just that unless it’s invested wisely.

It’s a very strange feeling approaching that time when that sum will hit my bank account because all of a sudden I’m really having to think about what I do with it.

I don’t want a second career, and I was refreshingly blunt when asked by my IFA last week what I wanted to do. I simply told him once I have settled the few small commitments I have got, and shaved a chunk off my monthly outgoings in the process, I want to close the gap between salary and pension as much as possible. My aim is to achieve financial parity as best I can with where I am now, whilst doing as little work as possible to get there.

Well, we can all dream.......

Neither did I, but I wasn't prepared to give up the lifestyle that the salary afforded me so back to work it was. Don't get me wrong, it's a good pension but I like my concerts & holidays, & wasn't prepared to throttle back; if anything the tastes have got more expensive

Seriously it was a good thing. I enjoyed the office interaction until Covid got in the way. It keeps my mind active, and I'm in an environment where I'm reasonably valued & trusted, rather than too closely supervised (and not trusted) by the War Office.

There's a plan in place, designed with the IFA, to pay off the current debts for the vehicles & then look at retiring. Mrs. BiM will have a small BBC pension to add to the pot, and if the investment has done what we hope, we'll be able to draw down to maintain the lifestyle until the state pension kicks in.

if you can get away without working good luck to you, but I wouldn't dismiss a bit of work completely. Having worked in a job where we were part of a team, it's remarkable how much you miss that interaction. Just as you count those that don't take the money on the fingers of one hand, I can number the same amount of people I worked with who said that they don't miss the job but they do miss the blokes (well, most of the blokes...)