NHS pension - bigger lump sum, small monthly 'wage' or vice versa ?

[Sanguinesuzy]

NHS nurse here.
I'm seriously considering taking early retirement this year, probably on a flexi basis so working one long day a week. According to the bumf you can take a larger lump sum and a smaller monthly income or a smaller lump sum (almost half less) and bigger monthly income. Most of my colleagues who've done this have taken the bigger income because in their words 'it all works out the same in the end'
Obviously I'm going to do some research, maybe even get some professional advice but I just wondered what others have done and why ? To give some background I've paid off my mortgage and have a fair amount of savings. One of my sons will be going to uni in the next few years so will require a student grant at some point. Any advice will be really welcome !

Thanks everyone, definitely giving me food for thought !

When do you qualify for state pension?

I’d personally go for the tax free lump sum and smaller pension if it’s soon - the state pension is still taxable income so you could end up paying 20% tax on some of your private pension

I calculated for mine that I had to live for 11years to get more from the annual with a smaller lump sum. At the time I didn’t expect to live that long/needed it for medical costs so went for the bigger lump sum. Hind sight I would take the higher monthly pay maybe to get more in the long term, but at the time the money was absolutely needed there and then.

If having the bigger lump sum will improve your quality of life, like pay off the mortgage/buy a caravan/holiday home abroad then absolutely do that over getting more money in the long run. Life’s too short to be buried with money to leave others.

I'm planning my retirement in the next 6 months. Nhs nurse and 55 in a few months. I'm taking the smaller lump sum and larger monthly payments. This works for me as no large debts or mortgage to pay off and I very fortunately have other investments and savings sorted. I'm going to do my revalidation and join the Bank but really hope I don't have the need or time to work again. Fingers crossed.

@Trying81 I'm 55 so quite so quite a few years from state pension. My monthly pension alone would just avoid taxation but add on income from a job then I would be taxed.

Apparently most people under estimate how long they will live for by quite a big margin, so you might need to think about that, and that would sway me towards lower lump sum and higher monthly income. On the other hand, higher monthly income would impact on funding care costs. If you intend to travel/do home improvements/treat the kids etc then go for the higher lump sum? No one knows what the future holds, there's been lots of hot air about a sustainable social care system but politicians of all colours bottle it repeatedly, which in turn makes it really hard to plan for. Would you need the same level of pension income in 35 years time?

You might want to look at whether the larger lump sum counts as income against which your DCs eligibility for student funding is assessed.

You can get free independent advice from Pension Wise, I think. Funded by the government. Check out their website and also the Citizens Advice pages.

www.pensionwise.gov.uk/en/appointments

Thanks for the advice. Such a big decision with long lasting consequences !

And iI would chat to your union or NHS HR. I am confident they will have links with other advisers who can help or at least help point in right direction.

Do you have any friends or family who work in finance? Get them to run the numbers for you. It may not all ‘work out the same in the end’ because cash today is worth more than cash tomorrow- because today, you can invest it and it will grow. When you look at future cashflows you have to discount them back to today.

If you know someone who’s an accountant, has a business degree or works in finance should be able to help with this. Important to get it right!

Even if the amount of money worked out about the same I think I'd go for the higher monthly amount. I think psychologically it would be more reassuring to have that guaranteed and maybe also make me less worried about spending it!