Options

[Bazile]

£ 15000 - Yearly payment
£ 36000 - one off lump sum

or

£ 13000 - Yearly payment
£ 65000 one off lump sum

Am i thinking correctly as follows-

If i chose the higher lump sum , i would receive £ 29000 more now ( but with a lower yearly payment )

The higher annual payment would be a difference of £ 2000 more , and it would take 14.5 years to get the extra £ 29000 i would get now

I don't know if i've asked the question i've got in my head

Is the above correct and what do you think is a better option - higher yearly payment or higher lump sum now ?

[bhg481]

How long do you think you will live? How old are you is a start.

[gingejbee]

Doesn't it all depend on your present circumstances (how much cash you want/need now) and how long you plan to live?

[BAKERS DOZEN]

Just remember that whatever lump sum you choose it will be added to your final salary (assuming this is your pension your asking about). That amount plus your salary could take you into the 40% tax bracket in the year you take it.

[New Judge]

The extra £2k a year will actually be only an extra £1,600 after tax is taken off it (at today's rates). This means the recovery of the difference will take 18.1 years. That said there may be tax implications for either the £29k or the £65k. If this is a pension payout you should be able to "wash" the lump sum through your pension scheme.

You should find out the answers to those questions first.

[bhg481]

It's always worth bearing in mind that, because of inflation, the yearly payments will effectively diminish in value over the years, making it longer to get the same VALUE of the larger lump sum. I would go for the larger lump sum.

[bhg481]

I had assumed it was a prize, rather than a pension and that makes a lot of difference for tax.

[Old_Geezer]

Take into consideration what money you need now to pay off debts etc..

Then draw a graph along a time line and see which makes you better off by the time you think you will pop your clogs.

Another thing to hold in mind is that the government forgets health matters should be an NHS thing when older and takes whatever wealth you have, up to a point, if you need assistance later in life. It's possible later income won't much benefit you.

[Old_Geezer]

I'm assuming that this is an inflation proofed pension.
Whole new ball game if it's just savings.

[ubasses]

You need to sit down with a professional, there is nowhere enough information for anyone on here to advise you. They will ask a lot of questions about your overall financial position and what you need to get from the money. They can give projections on investment of the lump sums at safe, balanced or high risk levels, or let you know what extra income you would get if invested for income. Your tax position will be factored in. You would certainly not want to put all the information required on here.

[Bazile]

Thanks folks- the figures i've quoted is only for illustration purposes .
The real figures are less , so i don't think i will fall into the 40 % tax bracket

What level of earnings does the 40 % tax bracket start at ?

[ubasses]

Tax thresholds in below link

https://www.google.com/search?q=40+tax+threshold&rlz=1C1CHBF_en-GBGB797GB797&;oq=40%25+tax&aqs=chrome.2.69i57j0l5.9279j0j4&sourceid=chrome&ie=UTF-8

[Old_Geezer]

https://www.gov.uk/income-tax-rates

[BAKERS DOZEN]

When I retired I grabbed my lump sum because if I had died the following week then it would have died with me and Mr BD would only have got the spouse's much reduced pension. He would have to live forever to get anything like the amount I got.

[Bazile]

There is no question that i will take a lump sum - i'm just considering which option -

lower yearly payment with higher lump sum
or Higher yearly payment with lower lump sum

The difference between the higher and lower yearly payment is 17 %

The difference between the higher and lower lump sum is 88.59%

[fiction-factory]

You need to check how much (maybe all) of the lump sums will be tax free. It depends how much you need the lump sum. I declined from taking the max possible tax free lump sum because it was more than I could imagine needing on the next year or so given existing savings and I'd have just worried about how to invest it. You are not supposed to recycle tax free cash through a pension (and get tax relief again) and there are some restrictions on how much you can put back in each year, but you could probably recycle it through a spouse's pension plan.
Schemes tend to set the terms so that the options are equivalent on average but it all depends on how long you live, your current savings, other income, your spending plans, your tax position, etc.

[Bazile]

All of the lump sum payment is tax free

[Bazile]

So I presume that only income generated from the lump sum would be taken into account with respect to tax / tax
threshold ?

[davebro]

What you intend to do with the lump sum matters. If I'd bought gold with mine it would have grown tenfold, property about 5 fold. I did neither :((

[Bazile]

What - you blew it ?

[ToraToraTora]

generally take as much as poss up front and if necessary use that to fund the difference.