EIHR Lump Sum & Scheme Pays LGPS

[SchemePays]

Morning - looking for advice on IHR. I appreciate I need to see an IFA but any comments would be helpful.

I am mid-forties and am unsure whether to take a lump sum. I am aware that it’s 1/12 so after 12 years I would end up receiving more pension longer term if I don’t take any lump sum. I am trying to balance that with quality of life as my condition is progressive but should not shorten my life.

I also need to decide whether to use the scheme pays option - the charge is less if I opt for a larger lump sum. I could pay the entire charge upfront but it would wipe out my life savings.

Any suggestions or questions I should be asking the IFA?

Thanks.

I’m sorry to hear about your ill health.

You need to speak to the IFA as there’s so many different variables here.

Generally, if you think you will live more than about 15 years after retiring, you will get more from taking the higher pension (it’s 15 years rather than 12 because the pension is taxable but the lump sum isn’t).

However, you need to weigh this against what you could do with the lump sum e.g. pay off mortgage, use it to make improvements to your house etc.

Your situation is more complicated though because it sounds like you have exceeded the lifetime allowance (I assume that’s what the scheme pays charge refers to). As you’ve said taking a larger lump sum and a lower pension will reduce the lifetime allowance charge so that also needs to be factored into your decision.

Personally I would go for scheme pays rather than leaving myself without any savings, but there is a risk there that you might end up paying a lot more than the original amount due if your pension is in payment for a long time. Your IFA will be able to advise which looks like the best course of action based on your prognosis.

Thanks for the reply @ChessieFL .

Yes I have exceeded the annual allowance due to the scheme having to pay in a lump sum because of my EIHR.

If I took the maximum lump sum and paid off the mortgage (using my savings too) I would then actually be entitled to welfare benefits on top as the yearly pension is under the tax threshold and I am a lone parent. The benefits entitlement would significantly decrease once my children become adults in a few years.

If I don’t take a lump sum then I will be over the limit for any top up benefits and over the income tax threshold.

However I may well live another 30 or 40 years, just with decreasing quality of life. The net monthly difference between no lump sum and 25% lump sum is around £400/month.

I think scheme pays is probably better as if I do happen to die within a few years my estate would have lost that lump sum of savings. I just don’t know what to do about the lump sum. Its such a difficult decision to make.

How much are your mortgage repayments, OP?

If taking the lump sum and clearing your mortgage would save you more than the £400 a month you'd lose, I'd say that's pretty tempting.

And you can go on entitledto.co.uk or turn2us, and see calculate how much Universal Credit you'd be entitled to with the different amounts of pension income.

You might also want to consider applying for PIP. I'd recommend getting help from a welfare rights adviser with the forms, but it could make quite a difference.

I was awarded PIP for 5 years @LakieLady so that’s sorted.

I am appealing the pension tier. If that’s successful the pension charge and lump sum will both increase. As it stands, if I took the maximum lump sum & cleared the mortgage then the entitled too calculator says I am eligible to receive a few hundred pounds a month. However that’s short term until the children reach 18 whereas my life span will hopefully be much longer.

Am still awaiting a decision on whether I have LCWRA as that makes a difference too.

I’d double check that using a lump sum to pay off a mortgage won’t affect a future benefits claim