£17k lump sum pension WWYD?

[sonicmum2002]

Hey wise mumsnetters - my head is spinning on this one so any advice gratefully received.

I'm now 55 and have an old DB pension. I can take it as 100% lump sum (worth about £16-17k after tax), or £5k tax free lump sum with £700/year pension, or 100% pension at £1k year and no lump sum (or range of options inbetween). The yearly increases are CPI-linked and capped at 4%.

The pension provider has it invested in a poorly performing fund - it has lost £1k in value over the past year. So no real reason to keep it there, it's actually quite risky.

I am thinking it would be better to cash it in 100% (taking the hit on tax) and stick it in an ISA. If I feel brave enough all in a stocks and shares ISA to maximise gain. Then any increases are tax free, and don't count towards taxable income.

My estate would be under IHT levels so that's not a concern.

What do you think?? I could transfer it into a private pension, but want to keep some liquidity in case of needing to help adult son with house deposit etc.

TIA, if you've got this far!

If it’s a DB pension then any investment risk is on your old employer, not you.

if you take the lump sum then it’s only worth the equivalent of 17 years of payments which seems poor value. Equally, it depends on whether a guaranteed £1k income a year will make any difference to your retirement income.

£1000 a year from 55 is excellent

That’s £12000 before you even reach retirement age.

Apart from this, what retirement income will you have? Knowing your other retirement income is important before making a choice.

Take the 100% pension at £1,000 per year and then invest it in a cash ISA, (or S&S ISA if you don't need the cash).
A guaranteed index-linked income for life is worth holding on to, even if it's a modest amount.

Question 1 - is 55 a compulsory retirement age for that pension scheme? If it isn't presumably there is also an option 4 "just leave it in the scheme".

Question 2 - are you currently paying into a pension scheme? Follow on question - if so, are you currently drawing any other pensions? Once you start drawing pensions (whether as a monthly pension or a lump sum) this reduces the amount you are allowed to pay into other pension schemes.

Your comment "The pension provider has it invested in a poorly performing fund - it has lost £1k in value over the past year." is factually incorrect. If it's a DB pension the value you are looking at is the transfer value of the pension, not a fund value. It will change all the time, usually in line with government bond yields. These have risen over the last year, causing your transfer value to fall.

Your comment "So no real reason to keep it there, it's actually quite risky" is debatable. If what you want is an annual income then it isn't risky at all to leave it there - you know exactly what you will get: £1,000 per year. If what you want is a lump sum then it is risky: it could go up or down. But then if your plan is to withdraw it and put it in a S&S ISA then that is ALSO risky: again it could go up or down.

So you need to think through your options carefully.

DH had a free hour's advice, I think from these people: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

He said it was very good and also flagged up some tax issues - something like once you've taken money out of your pension you lose some of the tax advantages if you continue to save. Worth checking out if you have other pensions elsewhere or are still planning on saving.

Pension wise don't advise on DB pensions unfortunately.

Agree your comment about investment doesn't make any sense. You have a promise to pay for life, not a pot of money.

Does the amount on offer change (increase) after 55 if you don't draw it now?

Generally it's better to leave it if you don't need it but it very much depends on the details of the scheme, your other provision for retirement and your tax situation.