Pension or lump sum?

[Fanacapan]

I retire in 2 years time, on an NHS pension. I was advised by a colleague to take the largest lump sum possible and the reduced annual pension. This is in case of not lasting long post retirement! Then the money is safely put away somewhere. Has anyone received this advice.

I also consider that once you add the state pension to any other pension, your tax threshold will be higher and likely over the basic level, so further reduction of income is likely. So take the max tax free amount whenever you can, right?

I find the NHS pension so confusing.
Is it possible to see anyone face to face who specialises in the NHS pension? I've only been able to ring and discuss it and I'm still not clear.

I feel your pain. The NHS pension seems to change every five minutes. I've only been in the NHS for five years so mine is relatively straightforward, but I have colleagues who are bemused.

Agree @beguilingeyes . It feels similar to the tax system where the more convoluted it is, the leslikely you are to challenge things!

I can get my pension from my years as a council worker, now. It’s frozen as went to a new job a few years ago. Im planning on taking it next year but as it’s just sitting there and I’m not paying in….wondering should I just take it now??? Use the lump sum to pay off some debts and save the monthly amount?

Or will I gain more benefit leaving it there for another year? Im not paying in but it’s index linked.

no idea what is best.

I always advise anyone who asks to take the largest lump sum you can, even if you invest it elsewhere. You don't know what's going to happen and it's better to have that money to hand

Rotor - a few things to consider:

• usually it will increase if you leave it but it varies from scheme to scheme so you must find out the details of your own scheme
• consider tax - you will pay income tax on your monthly pension payments+ other income
• have you considered what your outgoings will be in retirement Vs how much income you expect? Good to plan this and adjust your plans accordingly. Usually, if possible, you would want to pay off all debts from income whilst working since retirement income is likely to be lower. Avoid reducing your retirement income to fund expenses incurred whilst working - this doesn't make sense.

Thanks. No was planning to save the monthly amount for when I finish work… in a high interest account.

the lump sum would pay off mortgage.

the difference between taking pension now and at 67 is £900 in total. So I’m not sure why I’m waiting while that money is there. I’m not paying into it.

@Rotormotor if you take it before your normal retirement age it will be reduced for early payment, to allow for it being in payment longer. That’s what the £900 difference is. You need to consider whether having the money now is worth having a lower pension for the rest of your life - over 15 years that £900 difference is around £13500 which is quite a bit to lose, so is that worth taking it early if you don’t actually need the money? Only you can answer this obviously but something to think about!

No it’s £900 in total.

I took the minimum lump sum and maximised my NHS pension - this means my pension income will go up with inflation and over time give me more security.

Rotor - again, depends on your scheme rules, but most pensions will continue to rise with inflation all the time you are not drawing it so it will likely increase, tax free if you leave it until the date it was planned to draw.
You would usually be better to pay off your mortgage with earned income vs your pension lump sum which is likely to be needed more when you are retired and no longer able to save up for chunky expenses.

Obviously it all varies depending on numbers, ages and scheme rules, you have to know all these things to do the sums.

Just to clarify, in the LGPS deferred (frozen) benefits continue going up in line with CPI, but they will go up by CPI when they’re in payment too so that really makes no difference. As I said above the key thing is the amount the annual pension is reduced by for taking it early, and then you need to think about whether you want to have a lower pension but paid earlier (and therefore for longer) or wait until normal retirement age and then get the higher I reduced pension for the rest of your life. Only you can decide that.

That should say unreduced not I reduced!