Religion & Spirituality0 min ago
understanding my pension
5 Answers
I am due to retire at the end of this month and have received my pension info. I have the choice of two options. 1- Taking a lump sum of £12648.75 AND AN ANNUAL PENSION OF £4.715.59
2- An increased pension of £24,726.99 and annual pension of £3.709.07 the latter being the one I am going to select. Then it says for every £1 of pension commuted I will receive an additional lump sum of £12. I have to confirm which option I am taking and state the amount that I wish to commute. I need help to explain what this means and how much the amount will be that I commute. As I have never retired before have not got a clue what it all means.
Manhy thanks in advance
2- An increased pension of £24,726.99 and annual pension of £3.709.07 the latter being the one I am going to select. Then it says for every £1 of pension commuted I will receive an additional lump sum of £12. I have to confirm which option I am taking and state the amount that I wish to commute. I need help to explain what this means and how much the amount will be that I commute. As I have never retired before have not got a clue what it all means.
Manhy thanks in advance
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Just to clarify your figures, I think you mean the 2 choices are:
1) Lump sum of £12648 and annual pension of £4715, or
2) Lump sum of £24727 and annual pension of £3709
The next bit means that you actually have a whole host of options and 1) and 2) above are merely examples. So you could modify 1) above by increasing the lump sum by £12 and reducing the annual pension by £1. The figures (just to spell it out) would then be: Lump = £12660, pension = £4714. You get it? - there's many possibilities.
As to how much pension you decide to take is up to you. The trouble with the pension is that when one dies, the pension stops immediately (though there may be clauses that guarantee a payment for the first 5 years). Whereas if you take a bigger slice as lump sum and invest it, you might a) get a bigger return b) have something in the investment to pass onto your heirs.
1) Lump sum of £12648 and annual pension of £4715, or
2) Lump sum of £24727 and annual pension of £3709
The next bit means that you actually have a whole host of options and 1) and 2) above are merely examples. So you could modify 1) above by increasing the lump sum by £12 and reducing the annual pension by £1. The figures (just to spell it out) would then be: Lump = £12660, pension = £4714. You get it? - there's many possibilities.
As to how much pension you decide to take is up to you. The trouble with the pension is that when one dies, the pension stops immediately (though there may be clauses that guarantee a payment for the first 5 years). Whereas if you take a bigger slice as lump sum and invest it, you might a) get a bigger return b) have something in the investment to pass onto your heirs.
i retire in september, and i have the same problem as you rkp,although i cannot get a figure from my pension provider yet, i feel that because my wife will not be paying any tax, i could transfer the cash sum in her name and hope that the interest rate rises in the future. best to see a financial adviser
What is interesting about your post is that you are given £12 for every £1 of annual pension.
Looking at the fsa website for pensions, for a 65 year old male buying a pension rising with the RPI, will cost around £24 for each £1 of annual pension. And a level pension (no increase over the life of the pension) will cost around £15 for each £1 of annual pension.
Based on the above numbers, it would appear to me that you are being short changed by your pension provider. I would assume your pension to be rising by RPI (possibly with other benefits) and therefore your notional pension pot of money which your pension provider should have (to provide your pension), should be around £24 for each £1 of annual pension. If they used this figure, you would be receiving £24 for every £1 of annual pension sacrificed, and not £12.
This smacks of another pension rip off – whereby your pension company can place a ridiculously low value on your pension, to minimise any lump sum payout to you.
Looking at the fsa website for pensions, for a 65 year old male buying a pension rising with the RPI, will cost around £24 for each £1 of annual pension. And a level pension (no increase over the life of the pension) will cost around £15 for each £1 of annual pension.
Based on the above numbers, it would appear to me that you are being short changed by your pension provider. I would assume your pension to be rising by RPI (possibly with other benefits) and therefore your notional pension pot of money which your pension provider should have (to provide your pension), should be around £24 for each £1 of annual pension. If they used this figure, you would be receiving £24 for every £1 of annual pension sacrificed, and not £12.
This smacks of another pension rip off – whereby your pension company can place a ridiculously low value on your pension, to minimise any lump sum payout to you.
When you come to retire, you can take 25% of your pension as a lump sum – tax free. Obviously any annual pension pay out will be reduced by 25% if you take up this option.
Depending on what your company decides it needs to fund your pension, will determine the value of that 25%.
As an example, let’s say you have earned a ‘final salary based pension’ of £10k/year – which is indexed linked. To buy such a pension on the open market would cost around £240k, and 25% of this would be £60k.
Now rather than having to pay £24 for every £1 of annual pension – lets say your company pension claims it only needs £12 for every £1 of annual pension, your notional pension value would be £120k. 25% of this is only £30k, rather than £60k.
What you can take as a lump sum from your company pension scheme is critically dependent on what the pension company claims it needs to fund that pension. As far as I am aware – within reason, it can claim that amount is anything it likes – it is in the pension schemes interest to set this as low as possible – for all sorts of reasons.
Depending on what your company decides it needs to fund your pension, will determine the value of that 25%.
As an example, let’s say you have earned a ‘final salary based pension’ of £10k/year – which is indexed linked. To buy such a pension on the open market would cost around £240k, and 25% of this would be £60k.
Now rather than having to pay £24 for every £1 of annual pension – lets say your company pension claims it only needs £12 for every £1 of annual pension, your notional pension value would be £120k. 25% of this is only £30k, rather than £60k.
What you can take as a lump sum from your company pension scheme is critically dependent on what the pension company claims it needs to fund that pension. As far as I am aware – within reason, it can claim that amount is anything it likes – it is in the pension schemes interest to set this as low as possible – for all sorts of reasons.
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