retirement questions

[Andrew[MG]]

One of my aunts has asked me to help her decide what to do about her retirement/voluntary redundancy. She has 2 options to choose from so I thought I would see what you guys thought:

Option 1: £60k lump sum + £15.6k pension

Option 2: £85k lump sum + £13.5k pension

The pension is index linked.

I said go for the higher lump sum and give it to me to *invest* but she wasn't up for that She doesn’t have a mortgage and very few outstanding loans etc.

Any ideas which would be the better?

[Piglet]

My preferred option would be "asking an IFA who specialises in this type of thing".

[JustinP1]

Without being overly morbid, looking at this logically it comes down to whether she will be drawing on the pension for more than 12 years or not.

That is the simple equation of course and the tax and investment implications are the next thing.

Even if she stuck the extra 25k in the bank at 4% over that 12 year period it will have gained her £15k in interest which skews the equation more towards the lump sum - for me anyway.

To be honest when you retire this is the time to liquidise your assets so you have a chance of using them. Leaving it in the pension is effectively tying it up further.

If she could live happily on the pension plus the £3000 a year in interest I would say take the money and enjoy it.

[Wings]

Does she have any children of her own, any other income/investment and therefore need the pension. If the answer to the former is Yes, then she might consider not taking her pension, thereby leaving the same outside of both taxable income and IHT.

[Andrew[MG]]

Cheers for the pointers there guys! I read up on quite a lot of stuff yesterday and passed on as much information as I could. With any luck it will be enough to let her make a more informed choice. I'm not sure either choice will make much of a difference but if it was me i'd rather have the money now and invest it myself.

[jacobyte]

My old man retired earlier this year and, rather than take an annuity, cashed in and opted for an income drawdown specialist, as it safeguards the funds for his dependents upon his death (annuities will sting you, or be very expensive if you want such guarantees) and is potentially far more lucrative in terms of both income and future value of the fund.

The firm he chose is called Pension Drawdown; give Jonathan Walker a call there - he'll be able to suggest what's best.

[Wings]

jacobyte said:

My old man retired earlier this year and, rather than take an annuity, cashed in and opted for an income drawdown specialist, as it safeguards the funds for his dependents upon his death (annuities will sting you, or be very expensive if you want such guarantees) and is potentially far more lucrative in terms of both income and future value of the fund.

The firm he chose is called Pension Drawdown; give Jonathan Walker a call there - he'll be able to suggest what's best.

Agree with that, but surely by doing the same, one is bringing the pension is subject to both income tax and IHT. If one does not need the pension, one's estate is better not to touch/drawdown the pension, since it will not be subject to IHT.