Basic rate PAYE tax, is it 20%? MIL needs to decide whether to take a lump sum in lieu of pension

[TeapotCollection]

FIL died earlier in the year. MIL has been offered either a monthly payment or a lump sum. The lump sum would be taxed as described above, is this 20%?

Depends on the figures involved.

And the age of your MIL.

Also once the lump sum is spent, it is spent where as a monthly sum could be better in the long run.

Thanks for that, I thought it might not be simple…

They’ve offered £60 a month for life or a taxable sum of just over £10k which I’ve worked out at roughly 11 years of monthly payments

She’s 75. I thought the lump sum looked good if it’s 20% tax

Sorry, roughly 11 years if she gets £8k after tax

It also depends on what other income she has coming in, she would be better off asking a professional.

Are her pensions in good order ?

Would the £60 a month £720 a year help absorb the energy price increases ?

So many variables.

She'll also pay tax on a regular pension. It all depends on what other income she has exactly how much she'll pay.

I was recently in a similar position. I took the income. You're basically betting on how long you'll live. If she collects the pension to a ripe old age, she'll be better off overall with the income, if she dies younger she might have been better off with the lump sum.

The monthly pension will (probably) get an inflationary rise each year.

Thanks both

Her pensions are in good order, yes. She has another one of FILs pensions that she’s claiming and of course her state pension

Agree it’s gambling on how long she’ll live. When she asks my opinion, which I know she’ll do hence the thread, I’ll be totally honest with her. She won’t mind, she’s lovely

The £60 a month would pay her electric bill, that’s definitely one way of looking at it. She doesn’t really ‘need’ the lump sum as such she lives a very simple life

We’re seeing her later, I’ll explain it to her and see what she says

Thank you for your input folks 🙂

Just thought of something else, will the monthly payment tip her into 40p in £ bracket ?

Thank you for starting this, it has given me the kick up the arse to finish filling in the claim form on one of my tiny pensions.

The paperwork has been sitting there mocking me for months. 🙄

I would always take the lump sum and bank it, if anything happens at least I know my children and grandchildren will get something from the proceeds. If I were to just take the monthly amount when I pass that payment will not pass onto them.

No problem TheBatKeeper, glad it’s helping you too. Do you know what that bracket limit is? I don’t think she gets loads off the other of FILs pension so I wouldn’t have thought so but very good question

iwannascream I see what you’re saying but she has to do what’s right for her. We certainly don’t want her taking the lump sum because we might get it

The first £12 k is tax free and then I think it tips in at £50,270.

I am not a professional, this is just bits I have picked up whilst sorting out our pensions and investments for this August.

Blimey, she’ll be nowhere near that, not even close. Imagine having that kind of income 😃

Thanks again, hope you manage to get your stuff sorted