Pension question

[Blackmac]

I wonder if anyone can provide an input into a fierce pension debate that has broken out on a Police Facebook group I am on. One lad has suggested it is stupid to take the maximum tax free lump sum rather than bigger monthly pension as you lose in the long term. He claims this was advice received from two pension advisors. Obviously after a certain amount of years this would be the case but you would appear to be looking at many many years.
Most are gobsmacked by this and arguing that it is mental to turn down tax free money, which carefully invested could easily provide income equal to the additional monthly pension. Essentially these two scenarios.

Cop A opts not to commute £5000 of his yearly pension. He receives this as income, taxed at 21% (Scotland) so gets £3950 in his hand.

Cop B commutes the £5000 at a commutation factor of roughly 15 ( I was 15.4 due to age), so receives £75000 tax free that hypothetical takes him up to the maximum tax free lump sum. After a couple of years he has this invested in solid tax efficient products which could reasonably pay him between £3000 and £6000 income tax free.

Whilst I appreciate that the investments are not guaranteed and the yearly pension will grow as it is index linked, i'm intrigued to know what advice he could have been given to go for option 1.


Indulge me, thick ex cop remember.

[Insane_Homer]

If part of the lump sum is used to pay off outstanding mortgage then there a bigger incentive there too

[vball]

I am retiring in 2 weeks and have taken on pension advice from financial company.
They advise to take the lump sum as it is tax free.
We have a fair bit under the mattress and that, along with lump sum, will supplement the pension in returns.
If you do not take lump sum, you will get taxed on the extra you would get on the pension.

But it all depends in what you want to do with the lump sum too.

[Blackmac]

If part of the lump sum is used to pay off outstanding mortgage then there a bigger incentive there too

Yes indeed but no we are just looking at the above scenarios as the guy is essentially saying you are wrong to take any lump sum over and above your immediate needs

[Blackmac]

I am retiring in 2 weeks and have taken on pension advice from financial company.
They advise to take the lump sum as it is tax free.
We have a fair bit under the mattress and that, along with lump sum, will supplement the pension in returns.
If you do not take lump sum, you will get taxed on the extra you would get on the pension.

But it all depends in what you want to do with the lump sum too.

Yep that is exactly what most of us are saying. Tax free lump sum leading to tax free income over taxed income. He is refusing to disclose what advice he had so I get the feeling he is just trying to justify a poor decision.

[SaintK]

I took the maximum lump sum when I retired 6 years ago on advice from an IFA who I still use.
I also ,made sure my consolidated annual pensions were below the higher tax rate as well.
Your colleague is getting bad advice

[Blackmac]

I took the maximum lump sum when I retired 6 years ago on advice from an IFA who I still use.
I also ,made sure my consolidated annual pensions were below the higher tax rate as well.
Your colleague is getting bad advice

Not convinced he has had any. Never the brightest lad and I think he just looked at a potential break even of 15 years without looking at the tax and investment factors.

[C69]

Obviously it depends upon wha you monthly pension would look likr

[Blackmac]

Obviously it depends upon wha you monthly pension would look likr

In what way do you mean. Hypothetically if we look at officers retiring on the same pension but one takes the full tax free sum available as in the scenario I posted, it is difficult to see how that can't be the correct decision. Is there anything I'm not taking into account.

[C69]

Obviously it depends upon wha you monthly pension would look likr

In what way do you mean. Hypothetically if we look at officers retiring on the same pension but one takes the full tax free sum available as in the scenario I posted, it is difficult to see how that can't be the correct decision. Is there anything I'm not taking into account.

Apologies on my phone not read it properly, I was talking in general where if the monthly salary was too low for commuting an amount.
If that makes sense. Ironically I have just put in for my pension. Will be returning to work part time.

Have not taken the full lump sum as I intend to work another 6 or so years and am paying into another NHS pension scheme.

I am very fiscally conservative and wanted to ensure a yearly pension of a certain amount as my wife won't be getting a large amount