What to take on my pension?

[GreatTheCat]

I've been signed off sick/disabled from work. Tier 1.
I am 51.

I have been offered £18k plus £120k

Or 29k

Which should I take?

Is this 18k a year and 120k lump sum? Is the 29k a year with no lump sum?

Do you expect to live beyond 63? If so you will benefit from the larger pension.

Of course there are other considerations such a outstanding mortgage.

What is Tier1 ?

Does your skinless/disability mean you have a lower life expectancy than the ONS calculator result: www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07

You may have 30-40 years of life expectancy.

If you got the lump sum, what would you use it for?

It depends on your prognosis to a large extent I would have thought? And also whether you have any debts to pay off/renovations you want to do/ etc

Hayley1256
Yes that's right.

I have Strokes (that might kill me). I have no debt. Don't know what I'd spend 120k on. Maybe a holiday?

Having strokes may mean that you need adaptions to your home in the near future, may mean you need in-home care. So the money may be useful for that.

It also means you may have a reduced life expectancy, If you anticipate that you won't survive more than 20 years then taking the lump sum probably gives you more overall.

Have a plan for the money. Spending some on an experience is good. Invest most of it, such that it remains accessible for when you need it for your care needs.

If the £29k is for the rest of your life then at your age, unless you have a life limiting illness where you’re expected not to live for more than a few years, then that’s what I would choose. It would take 10 years for you to break even by taking the lump sum and lower amount, after that, you’d be worse off financially.

Take the lump and invest it

I would take the lower pension and the lumps sum but make sure its invested (get some financial advice).

But I might not get any other strokes. It's difficult.

I also have MS and Epilepsy.

Would the 120k be tax free? Bear in mind you will pay a lot more tax monthly on 29000 than 18000. As pp have said if you invest the 120k you will get an additional return per year and if you put 20k per year in an isa that will be tax free. Do you have dependants you could leave the lump sum to? A husband/partner pension? If you took the 29k would it die with you? Presumably they wouldn’t have given you retirement at 51 if life expectancy wasn’t usual
So many things to consider, my lump sum was higher but we decided to go with the lower amount and the lump sum. We haven’t touched it in 3 years but do use the interest. If we need work on the house, a car, a holiday or to leave a legacy it’s there.

PP makes a good point, is the lump sum tax free? You'll pay a lot more tax a year on the 29k pension than the 18k.
You have medical conditions which will likely reduce your life expectancy so in your shoes I'd take the lump sum (and put in high interest account) and the reduced pension

I don't know if I have to pay tax on it. I'll find out.

I'm single (my choice) and I have a similar amount in the bank as the lump sum.

@GreatTheCat is the pension index linked I.e. goes up each April?
Is there a way to take a pension of say £25k and a smaller lump sum?
Are you entitled to PIP?

You will pay tax on your pension but not NI nor pension contributions.

Of course you do, it's income.

Yes, it's linked.

I'm thinking of taking the higher amount.

Thanks all

You can use your 25% tax free pension allowance by excluding 25% of each annuity payment from your taxable income. It would end up only being £750 extra income tax per year to take £29k instead of £18k per year.

Essentially £10k a year extra income for life.