Pension - 90 year old - take lump sum or carry on?
Discussion
I have a relative who is 90years old and receives a pension from their late partner's employment.
I'm no expert and don't understand the technicalities but essentially, the scheme is being wound up and the responsibility for the pension wil move to an insurance company.
The letter they've had shows a 'likely' future annual pension (from the ins. co.) of a few hundred pounds a year more than the current annual pension of around £5k per annum.
Or, they can choose to take a lumps sum of 'probably' £25k ish.
This relative is 90, has dementia but lives in their own home with a lot of help - still mobile and continent but can't cook or walk outdoors independently.
The longest lived sibling in their family is 93.
Anybody have any thoughts on a course of action? How likely is it that 'probable' payments will be the same as actual payment?
I'm no expert and don't understand the technicalities but essentially, the scheme is being wound up and the responsibility for the pension wil move to an insurance company.
The letter they've had shows a 'likely' future annual pension (from the ins. co.) of a few hundred pounds a year more than the current annual pension of around £5k per annum.
Or, they can choose to take a lumps sum of 'probably' £25k ish.
This relative is 90, has dementia but lives in their own home with a lot of help - still mobile and continent but can't cook or walk outdoors independently.
The longest lived sibling in their family is 93.
Anybody have any thoughts on a course of action? How likely is it that 'probable' payments will be the same as actual payment?
AndrewEH1 said:
AndStilliRise said:
No Idea but I would have thought 25k per year is better than a few k a year considering his age.
I suspect the £25k is a one off payment and afterwards no more pension from that pot (or drastically reduce further payments)AndrewEH1 said:
AndStilliRise said:
No Idea but I would have thought 25k per year is better than a few k a year considering his age.
I suspect the £25k is a one off payment and afterwards no more pension from that pot (or drastically reduce further payments)The concern is if they go into a care home and live to a hundred.
No easy answers to these questions.
irememberyou said:
That's it - a one-off payment of £25k and no more annual pension or continue on an annual pension of £5 - £5.5k pa.
The concern is if they go into a care home and live to a hundred.
No easy answers to these questions.
You also need to consider the tax situation.The concern is if they go into a care home and live to a hundred.
No easy answers to these questions.
The current pension may suffer little or no income tax, whereas the lump sum may be mostly taxed.
AndStilliRise said:
Makes more sense then to have the lump sum.
Only if this relative lives for less than five years, minus any tax liability on the £25k.It's not an easy question to answer.
Is this pension the only form of income or are their other pensions/state benefits? Do they own their home (was it 'sold' under equity release)? What's the current care costs?
Does anybody know how much tax - roughly - they could be liable for on the lump sum? It doesn't seem to be too clear in the letter they received.
At the moment, the 90 year old's income is this pension plus the state pension. House is owned outright. No care costs at the moment as the family do it all.
There are no huge cash reserves - if they go in to residential care then the house will be sold.
Even they keep the annual pension, then it's about £100 a week off the care home fees.
If they take the lump sum, then it's probably just added to the house sale money and used up that way
The doctor has said the family should start planning for a care home soon on the basis of the dementia progression but the family feel he might be being a bit pessimistic and that there's at least another year at home before that.
Sadly it's really about life expectancy. It's not a life-changing amount of money for any of them but equally, the late partner paid in to the pension scheme all their life and they want to make the right decision.
It's just pulled everyone up a bit, they're being made to look at a life in financial terms and weren't ever anticipating having to make such a decision.
I suspect they'll end up doing nothing, so carrying on with the pension by default.
At the moment, the 90 year old's income is this pension plus the state pension. House is owned outright. No care costs at the moment as the family do it all.
There are no huge cash reserves - if they go in to residential care then the house will be sold.
Even they keep the annual pension, then it's about £100 a week off the care home fees.
If they take the lump sum, then it's probably just added to the house sale money and used up that way
The doctor has said the family should start planning for a care home soon on the basis of the dementia progression but the family feel he might be being a bit pessimistic and that there's at least another year at home before that.
Sadly it's really about life expectancy. It's not a life-changing amount of money for any of them but equally, the late partner paid in to the pension scheme all their life and they want to make the right decision.
It's just pulled everyone up a bit, they're being made to look at a life in financial terms and weren't ever anticipating having to make such a decision.
I suspect they'll end up doing nothing, so carrying on with the pension by default.
The personal allowance is £11850 at the start of the new tax year,
.
Income over £11850 will be taxed at 20%.
Dividend allowance if applicable is £2000
Personal savings allowance for basic rate tax payers is £1000.
The 40% band starts at £34501.
You should be able to get a good estimate from there if you know his pension income.
.
Income over £11850 will be taxed at 20%.
Dividend allowance if applicable is £2000
Personal savings allowance for basic rate tax payers is £1000.
The 40% band starts at £34501.
You should be able to get a good estimate from there if you know his pension income.
Monkeylegend said:
The personal allowance is £11850 at the start of the new tax year,
.
Income over £11850 will be taxed at 20%.
Dividend allowance if applicable is £2000
Personal savings allowance for basic rate tax payers is £1000.
The 40% band starts at £34501.
You should be able to get a good estimate from there if you know his pension income.
I think the annual income (occupational + state pensions) is around about the £11-12k mark so it sounds like there'd definitely be at least 20% and most likely a bit of 40% payable, if they took the lump sum of £25k..
Income over £11850 will be taxed at 20%.
Dividend allowance if applicable is £2000
Personal savings allowance for basic rate tax payers is £1000.
The 40% band starts at £34501.
You should be able to get a good estimate from there if you know his pension income.
It looks like they'd pay about the equivalent of a year's pension in tax, which is likely to strongly influence the decision, regardless of the life expectancy aspect.
Many thanks for that.
Edited by irememberyou on Saturday 17th March 19:39
irememberyou said:
Monkeylegend said:
The personal allowance is £11850 at the start of the new tax year,
.
Income over £11850 will be taxed at 20%.
Dividend allowance if applicable is £2000
Personal savings allowance for basic rate tax payers is £1000.
The 40% band starts at £34501.
You should be able to get a good estimate from there if you know his pension income.
I think the annual income (occupational + state pensions) is around about the £11-12k mark so it sounds like there'd definitely be at least 20% and most likely a bit of 40% payable, if they took the lump sum of £25k..
Income over £11850 will be taxed at 20%.
Dividend allowance if applicable is £2000
Personal savings allowance for basic rate tax payers is £1000.
The 40% band starts at £34501.
You should be able to get a good estimate from there if you know his pension income.
It looks like they'd pay about the equivalent of a year's pension in tax, which is likely to strongly influence the decision, regardless of the life expectancy aspect.
Many thanks for that.
Edited by irememberyou on Saturday 17th March 19:39
Is there any tax free element based on the circumstances?
Monkeylegend said:
That seems about right based on income.
Is there any tax free element based on the circumstances?
Not that I know of. All of their financial affairs seem straightforward. The occupational pension is the only income other than the state pension.Is there any tax free element based on the circumstances?
As an aside, I looked up life expectancy for 90year olds and the average is 94 to 95 once you've already made it to 90.
Of course, that doesn't take account of any illnesses, current health and so on... but most 90 year olds would have some medical conditions anyway.
It all seems like it's a fairly close call on the choice between taking the lump sum or the ongoing pension.
But on the basis that they just might make 100, or even 95, - it's probably safer to go with the pension - let's hope I haven't jinxed anything there!
I think you are making the right decision to stick with the pension payments.
Tax on the lump sum would, as you say, mean four year's worth of income being paid upfront with nothing further. If this income is important and there is nothing useful the lump sum could go towards then it is better to stay with the income rather than risk them living past 94 without enough money coming in.
Tax on the lump sum would, as you say, mean four year's worth of income being paid upfront with nothing further. If this income is important and there is nothing useful the lump sum could go towards then it is better to stay with the income rather than risk them living past 94 without enough money coming in.
JulianPH said:
I think you are making the right decision to stick with the pension payments.
Tax on the lump sum would, as you say, mean four year's worth of income being paid upfront with nothing further. If this income is important and there is nothing useful the lump sum could go towards then it is better to stay with the income rather than risk them living past 94 without enough money coming in.
Plus if you pick the right fund it will hopefully earn more than it would in an ordinary bank account.Tax on the lump sum would, as you say, mean four year's worth of income being paid upfront with nothing further. If this income is important and there is nothing useful the lump sum could go towards then it is better to stay with the income rather than risk them living past 94 without enough money coming in.
Monkeylegend said:
Plus if you pick the right fund it will hopefully earn more than it would in an ordinary bank account.
If it is a DB Scheme he won't have a choice of funds, but a very good point though - as most people won't have a DB scheme and don't realise it is not the pension that is doing well/badly, but the funds within the pension.JulianPH said:
Monkeylegend said:
Plus if you pick the right fund it will hopefully earn more than it would in an ordinary bank account.
If it is a DB Scheme he won't have a choice of funds, but a very good point though - as most people won't have a DB scheme and don't realise it is not the pension that is doing well/badly, but the funds within the pension.Just to clarify, in case it's unclear in the last couple of posts, this is an occupational pension that's been drawn for the past 25 years or so...
The employer pension fund has now been 'wound-up' after lots of litigation and some of the pensioners are being offered the option to either take a lump sum or carry on receiving their annual pensions.
The 'fund' will be administered in future by an insurance company and I guess they're seeing if they can minimise their future liabilities with the lump-sum pay-offs.
Off course, some pensioners and/or pensioners' families will gain by this - if the pensioner dies - the inheritance will be greater.
Some will lose, if they carry on taking the annual pension and then die sooner than the period the lump-sum would have paid for.
Thanks again. The tax liability info especially helped in decision making.
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