Lump sum or not
Discussion
Bit of a weird one this and not your usual pension question.
Due to moving work location, the company agreed a payment to cover some of the cost of fuel, the extra time taken to travel, depreciation on cars etc. Now this changes slightly over the first 6 years before disappearing, whilst a percentage of it stays for life. I'll try to make it as simple as possible.
Time = £5.44 per shift for 3 years
£4.08 per shift for 1 year
£2.72 per shift for 1 year
£1.36 per shift for 1 year
After 6 years, this disappears completely, and at the end of July 2026 it'll be 3 years, so I'll be into the final 3 years of this payment.
The second part is mileage, I get £4.81 per shift and this will stay for life, but can change in certain circumstances, accepting a promotion, obviously if you move depot or change job role, it also disappears. I've asked for information and clarity as to what happens when you move house, as this can also change the numbers.
Now the company have been offering lump sums this week, I've been offered 7.3k, this pays the mileage for 5 years (at a rate of 5 shifts per week for 44 weeks of the year), and the remaining 3 years of time, but it's obviously taxed, so 40% tax and I'll pay student loan on it as well so realistically only gonna come out with £3650 ish.
On one hand I'm thinking I can't realistically see a promotion for the next decade (I don't want a promotion in what I currently do), and I could earn £4.81 for every shift for the next 30 years. I've worked this out at £4.81 x 5 shifts per week x 44 weeks a year to be £1106, x 30 years = 33k before tax.
However, we are public sector and I know a new Government company is taking over the rail industry next year, so this may negate this amount completely and I may have to accept a new contract with no travel time or mileage etc.
I have no immediate need for the money, but I am debating taking the 7.3k and sticking it into my pension into my fund choice, which has seen returns of 10% p.a. since its launch in 2013. 7.3k @ 4% yearly interest over 30 years = £23680.
Any thoughts or help is appreciated, I've got around 10 days to decide whether I want to accept or reject the offer.
Due to moving work location, the company agreed a payment to cover some of the cost of fuel, the extra time taken to travel, depreciation on cars etc. Now this changes slightly over the first 6 years before disappearing, whilst a percentage of it stays for life. I'll try to make it as simple as possible.
Time = £5.44 per shift for 3 years
£4.08 per shift for 1 year
£2.72 per shift for 1 year
£1.36 per shift for 1 year
After 6 years, this disappears completely, and at the end of July 2026 it'll be 3 years, so I'll be into the final 3 years of this payment.
The second part is mileage, I get £4.81 per shift and this will stay for life, but can change in certain circumstances, accepting a promotion, obviously if you move depot or change job role, it also disappears. I've asked for information and clarity as to what happens when you move house, as this can also change the numbers.
Now the company have been offering lump sums this week, I've been offered 7.3k, this pays the mileage for 5 years (at a rate of 5 shifts per week for 44 weeks of the year), and the remaining 3 years of time, but it's obviously taxed, so 40% tax and I'll pay student loan on it as well so realistically only gonna come out with £3650 ish.
On one hand I'm thinking I can't realistically see a promotion for the next decade (I don't want a promotion in what I currently do), and I could earn £4.81 for every shift for the next 30 years. I've worked this out at £4.81 x 5 shifts per week x 44 weeks a year to be £1106, x 30 years = 33k before tax.
However, we are public sector and I know a new Government company is taking over the rail industry next year, so this may negate this amount completely and I may have to accept a new contract with no travel time or mileage etc.
I have no immediate need for the money, but I am debating taking the 7.3k and sticking it into my pension into my fund choice, which has seen returns of 10% p.a. since its launch in 2013. 7.3k @ 4% yearly interest over 30 years = £23680.
Any thoughts or help is appreciated, I've got around 10 days to decide whether I want to accept or reject the offer.
Lump sum into pension for me.
Years ago my employer decided not to continue any bonus paid as being eligible for pension contributions on and to “ compensate “ me as a relatively junior employee at the time with a lump sum equivalent to nearly 6 years of additional contributions from them.
It wasn’t until decades later that I realised the true value of this !
Years ago my employer decided not to continue any bonus paid as being eligible for pension contributions on and to “ compensate “ me as a relatively junior employee at the time with a lump sum equivalent to nearly 6 years of additional contributions from them.
It wasn’t until decades later that I realised the true value of this !
dingg said:
Bird in the hand
Nothing to look forwards to long term if as you suspect things will change
Lump sum ,then p
s off to a job that isn't run by morons
What a stty complicated system
Welcome to the public sector!Nothing to look forwards to long term if as you suspect things will change
Lump sum ,then p
s off to a job that isn't run by moronsWhat a s
tty complicated systemPanamax said:
+1%
So now you re 100% sure.
So now you re 100% sure.
super7 said:
What happens if you leave? Do you have to repay some of the lump sum?
Nope, all sums are final. I could take it tomorrow and leave next week and it's still mine.It s not just £7,3k as if you put it into your pension you ll benefit from years and years of compounding interest.
Your receiving a guaranteed payment that you can invest, compared to a possible future payment that isn t guaranteed.
If you re going to put it into your pension then definitely take the lump, but don t take it and then spend it. Put it to good use.
Your receiving a guaranteed payment that you can invest, compared to a possible future payment that isn t guaranteed.
If you re going to put it into your pension then definitely take the lump, but don t take it and then spend it. Put it to good use.
Edited by The Gauge on Thursday 2nd July 15:58
10% is a bit of a spicy return, but anyway, if you could achieve a 10% return, then that £1106 per annum for 30 years is currently worth about £10,500 as a lump sum.
So if you had the option of taking the annual payments and sticking them in a pension each year, that is actually the better option. The lump sum they're offering you is actually too low.
If you assume returns on average are less than 10% per annum, then the lump sum they're offering looks a lot worse.
But ...
Will you actually receive the payments for 30 years? And perhaps you won't always be able to stick them into a pension tax free (because rules changed or you max out your contributions). So taking a lump sum now exposes you to less event risk.
If you assume a rate of return of 5% then the lump sum they're offering is fair if you stay in the job for 10 years. So personally I'd take the lump sum if I thought it was fairly likely I'd leave the job in the next ten years.
So if you had the option of taking the annual payments and sticking them in a pension each year, that is actually the better option. The lump sum they're offering you is actually too low.
If you assume returns on average are less than 10% per annum, then the lump sum they're offering looks a lot worse.
But ...
Will you actually receive the payments for 30 years? And perhaps you won't always be able to stick them into a pension tax free (because rules changed or you max out your contributions). So taking a lump sum now exposes you to less event risk.
If you assume a rate of return of 5% then the lump sum they're offering is fair if you stay in the job for 10 years. So personally I'd take the lump sum if I thought it was fairly likely I'd leave the job in the next ten years.
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