Not taking the lump sum.

[garymalcolm]

Can anyone give me any information on not taking your lump sum and having it converted to pension? I spoke to someone in RMSPS but I got the distinct impression she didn't know what she was on about!

I read somewhere that every £12 of lump converts to a £1 increase in pension, is this right? I'm a deferred member and looking at taking my pension early and don't particularly need/want a lump sum but would like a larger pension. Any help would be appreciated.

[RobertT]

I assume you're a deferred section B member?

If so there used to be an option to forgo some or all of your lump sum for more pension. but having looked into this, it doesn't seem to be mentioned in any of the literature on the website. So to be honest i'm not 100% sure it still is an option.

[RobertT]

Further to my previous post:

You may know there were changes made to the pension scheme in 2014. I won't go into detail here, but I've have had a quick look at the booklet we were sent at the time and on page 20 it does say:

No allowance has been made for the possibility of members opting to exchange pension at retirement for (additional) lump sum benefits, or vice versa if Section A/B.

Which is the only reference I've been able to find.

You should get options when you apply to take your pension but I should ask again to see what they say.

The booklet can be viewed here.

[Steve_claret]

Taken from the latest RMSPS Benefit Guide.

https://www.royalmailsps.co.uk/support/useful-documents" onclick="window.open(this.href);return false;

Flexibility to increase your lump sum or pension
On taking your benefits, you may be able to give up part of your pension in exchange
for a higher tax-free lump sum of up to 25% of the total value of your benefits,
including any Additional Voluntary Contributions (AVCs).
Alternatively, you may exchange all or part of your lump sum to increase your pension.
In this case your spouse’s/civil partner’s pension will also be increased. You must
provide us with at least 31 days notice prior to your retirement, if you would like to take
this option.

[garymalcolm]

I have found reference to being able to convert all or part of your lump sum to a pension in their guide to section A/B members but of course unhelpfully it doesn't mention how this is calculated. (just spotted the above post.) As so few people actually do this it's tricky trying to find out but on my calculations doing this would allow me to take my pension at 56 at the same rate as if i'd waited until 60 but without the lump sum. I've written to them to ask for a quotation but I really wanted to find out before the start of the financial year as I'd have tax implications if I continue to work and earn over the personal tax allowance. I might try phoning again and see if I get someone who knows this time.

[Driver74]

It you are section b member when you get your pension quotation there will be be 3 choices maximum lump sum, lower lump sum or just your pension I have never known anyone who hasn’t taken the maximum lump sum but the choice is there

[Fatboyslim]

As driver 74 says. You get three choices. Nothing, middle figure top figure.

I was looking to take no lump sum. The difference it made to my pension was £100 pcm. In my case it would have taken 41.7 years to be in profit. I would have been 96 before I was gaining. So, I took max lump sum instead. Horses for courses though. Everyone is different.

[RobertT]

Something in the back of my mind says the commutation rate is 24:1, so you need to give up £24,000 lump sum to get an extra £1,000 per year pension. Which would be half of what you thought.
Although as a section C member, I might be wrong.

[garymalcolm]

As driver 74 says. You get three choices. Nothing, middle figure top figure.

I was looking to take no lump sum. The difference it made to my pension was £100 pcm. In my case it would have taken 41.7 years to be in profit. I would have been 96 before I was gaining. So, I took max lump sum instead. Horses for courses though. Everyone is different.

Perhaps that's why no-one does it then. I don't know where I read the 1:12 but if it's 1:24 it won't be worth me doing it either.

[Fatboyslim]

I started in 81. So section 'B'? To give up my LS to nothing equated to just over £100 a month. My LS was 45K. I had an AVC too that was fixed amount. Tax free. My missus pension earns over tax limit. So, as I'm just under. I gave her some of my tax free allowance. Saw it on Martin Lewis money show. In my case to draw 'even' I would have been 96. Either I'll be dead or in a home...

[Steve_claret]

Something in the back of my mind says the commutation rate is 24:1, so you need to give up £24,000 lump sum to get an extra £1,000 per year pension. Which would be half of what you thought.
Although as a section C member, I might be wrong.

I wrote to the pension helpline a few months ago asking about commutation rates and they wouldn't commit to a figure saying they were always changing and they would only give you a rate once you applied for your pension. I was thinking that the rate was in the 20's which is good if you want to take a bigger lump sum as you lose less annual pension but not so good if doing the opposite. I think this is why people tend to favour the max lump sums.

[garymalcolm]

I started in 81. So section 'B'? To give up my LS to nothing equated to just over £100 a month. My LS was 45K. I had an AVC too that was fixed amount. Tax free. My missus pension earns over tax limit. So, as I'm just under. I gave her some of my tax free allowance. Saw it on Martin Lewis money show. In my case to draw 'even' I would have been 96. Either I'll be dead or in a home...

Thanks for that, it's going to be the same for me probably, Section B joined in 1986 but left in 2015.

[Fatboyslim]

I was 81 to 2017. I did have the attitude of not wanting a lump sum. But, when I chewed the figures - it was a no brainer. Plus it's tax free.

I had the vision of me sat in a home when I'm 96 (if I get there). And thinking I'm in 'profit' now. At the moment it's just sat in a higher interest account. Plus my vr money too. In a short while we are going to start enjoying some nice travels. At least I have the money. cannot take it away. In my case it must have been higher that 1:24.

[baldrick]

As driver 74 says. You get three choices. Nothing, middle figure top figure.

I was looking to take no lump sum. The difference it made to my pension was £100 pcm. In my case it would have taken 41.7 years to be in profit. I would have been 96 before I was gaining. So, I took max lump sum instead. Horses for courses though. Everyone is different.

Perhaps that's why no-one does it then. I don't know where I read the 1:12 but if it's 1:24 it won't be worth me doing it either.

The rates can change, but when I took my pension in 2011 the conversion rate of lump sum to pension was £23.70 to £1.
The conversion from pension to lump sum was £1 to £17.75.

Most people I knew did convert pension to lump sum, which is tax free. I converted most of my lump sum to pension.
People did say it would take 23.7 years for me to recover what I had given up. But I thought with inflation reducing the any lump sum, and pension increases it would take about 17 years to 'break even'. I have been drawing the pension for almost 8 years now, and think I'm good for another 10 years at least, so I think I will be 'in profit'.
I also worked out that the return on the surrendered lump sum would be 4.22% pa, which was (and still is) better than any return I would get from investing any lump sum.
But of course you do have to factor in how long you expect to live and be drawing the pension.

[Steve_claret]

But of course you do have to factor in how long you expect to live and be drawing the pension.

Now where did I put that crystal ball?