UK pension: lump sum option

[imaginatorium]

I now have to choose a lump sum or an annuity - should be pretty easy, given the figures. Except that they make it clear that if I want the lump sum I have to choose before they tell me the value of the annuity. Welcome to 1984!

In the eighties I worked for ICL for about 7 years, and had a company pension, which I am fairly certain was index-linked, etc. But of course ICL folded, and somehow I ended up with a pension from Northern Telecom in Canada. Of course, next NT went bust, so I ended up with a government-backed 90% of the original, absolutely not index-linked. I get the basic amount already, but with final winding up (NT actually folded about 10 years ago), I am at last being offered the final additional amount, based on the money recovered from the defunct entity's assets. There is a long and tedious story about some lawsuit ("Hughes"); before this was resolved I was offered a "2021 lump sum" of £4289, which they said was based on the funds already confirmed as available. One deduces that since these people are genuine top-level supercompetent financial experts they are correct, and while they cannot say how much extra money will be made available, it can hardly be negative. Except that the "2023 lump sum" is £3713. The alternative is a pension secured according to "insurer pricing and market conditions". Presumably an expert in this grubby trade would have an idea of what sort of amount this might be, but I don't. Does anyone have any ideas on getting a suggestion...?

(OK, actually they do explain that market conditions in 2022 meant that government bonds crashed, reducing the value. My visceral hatred of idiots like Truss has a personal element then. I am basically minded to take the cash, because at least I can't then lose any more.)

[Moneymatters]

I now have to choose a lump sum or an annuity - should be pretty easy, given the figures. Except that they make it clear that if I want the lump sum I have to choose before they tell me the value of the annuity. Welcome to 1984!

In the eighties I worked for ICL for about 7 years, and had a company pension, which I am fairly certain was index-linked, etc. But of course ICL folded..

What a small world.. I started work for ICL in the 1980’s. Opted out of the company pension scheme after a year or so. I think I just got my contributions back.

Did you visit the Beaumont training centre much? I used to gain more weight than knowledge each time I stayed there..
Rather than folding, I thought they were acquired by Fujitsu a few years after I quit.
Sorry to hear that pension ended so poorly for you. I have no advice or pithy words.

[Tkydon]

"2023 lump sum" is £3713." @ Y160 = Y594,000

Unfortunately, the market has tanked over the last year and a bit, so in GBP the amount looks like it has dropped considerably, -13%, but due to the weakening Yen against all currencies it's only down -4.5% in Yen terms

"2021 lump sum" of £4289." @ Y145 = Y622,000

Unfortunately, with that amount of principle, I'm afraid any annuity will be so small that you might not notice it... Maybe about 2% per year or £75 per year...

There are several organisations in the UK who can give impartial advice on Annuities, such as the Citizens's Advice Bureau. Check online.

You should probably take the Principle and do something meaningful with it; invest it in a NISA here.

However, with that amount, if you take a lump sum in Japan, it will be under the limit of the Lump Sum Special Tax Deduction, and should be completely tax free both overseas and in Japan, with some caveats related to other lump sums you may receive/have received...

[northSaver]

"2021 lump sum" of £4289
"2023 lump sum" is £3713

Meanwhile, the UK state pension will rise 10% this April
I can't help thinking major reforms will happen to the UK state pension in the near future. And not in a good way

[Tkydon]

"2021 lump sum" of £4289
"2023 lump sum" is £3713

Meanwhile, the UK state pension will rise 10% this April
I can't help thinking major reforms will happen to the UK state pension in the near future. And not in a good way

Not related... And not if you are already receiving the UK Pension overseas...

[imaginatorium]

In the eighties I worked for ICL...

Did you visit the Beaumont training centre much? I used to gain more weight than knowledge each time I stayed there..
Rather than folding, I thought they were acquired by Fujitsu a few years after I quit.
Sorry to hear that pension ended so poorly for you. I have no advice or pithy words.

Yes, I think what happened was that ICL was sold to Fujitsu, but my pension stayed with the parent company, STC, which somehow got absorbed into Northern Telecom.

I think it might have been the Beaumont Centre I went to on an X-Window course, while I was working for Longman dictionaries. I remember their slogan: "Rasteropping on wheels", which amazingly google manages to say "Nothing found"! Can't imagine why I was on a window system course, because I wasn't doing that sort of programming...

[Wales4rugbyWC23]

"2021 lump sum" of £4289
"2023 lump sum" is £3713

Meanwhile, the UK state pension will rise 10% this April
I can't help thinking major reforms will happen to the UK state pension in the near future. And not in a good way

Not related... And not if you are already receiving the UK Pension overseas...

Does depend on what country you live in. If you live in Canada, you don't but if you live in the USA you do. I can't quite work the logic of that but even with no index rate rises it is still a good deal with the Japanese pension.

[imaginatorium]

"2023 lump sum" is £3713

Unfortunately, with that amount of principle, I'm afraid any annuity will be so small that you might not notice it... Maybe about 2% per year or £75 per year...

Many thanks for your reply. I am old (^_^) so I guess the figures would be a bit better than that, but you seem to suggest that I am not likely to regret taking a lump sum. Unlike the case only a few days ago, this is not an isolated pension, it is a bit of addition to the pension I am already receiving. I believe the cash equivalent (10-12 years ago) was about £40,000, so I naively expected around 10% extra on my current pension of £1952pa, backdated 10+ years. But I suppose that even in simple (to an empirical rationalist) cases, a committee very important people have to look at it, and they need lunch to start with, and I simply cannot comprehend how much lunch can cost, so I give up. At least if I take the cash I can be fairly certain I will not get another shock.

[Tkydon]

Many thanks for your reply. I am old (^_^) so I guess the figures would be a bit better than that, but you seem to suggest that I am not likely to regret taking a lump sum. Unlike the case only a few days ago, this is not an isolated pension, it is a bit of addition to the pension I am already receiving. I believe the cash equivalent (10-12 years ago) was about £40,000, so I naively expected around 10% extra on my current pension of £1952pa, backdated 10+ years. But I suppose that even in simple (to an empirical rationalist) cases, a committee very important people have to look at it, and they need lunch to start with, and I simply cannot comprehend how much lunch can cost, so I give up. At least if I take the cash I can be fairly certain I will not get another shock.

I misunderstood slightly

I now understand they are offering an additional settlement on top of your current Pension Benefit which you are already receiving as Pension paid monthly, and have been receiving for some years, and that settlement amounts to a current total value of £3713.

I'm not an expert, but if you decide not to take the lump sum, I think you will purchase an additional Annuity with the settlement amount starting from the day you decide to do so, so there may not be any backdating as this is built in to the current value of the settlement...

They can't tell you how much because the actual % will depend on several variables; your age at the time you purchase the additional Annuity, the Life Expectancy the Annuity Provider estimates for the calculation, and the current market conditions and interest rates at the time, but will then be locked in for the future... Different Annuity Providers might even value them differently.

If you were to convert that into an additional Annuity now, then the value of the Pension Payment from that additional Annuity, depending on your age, might be in the range of 3% to 5% (or maybe more) of the Settlement Value of £3713. Maybe:
£110 per year, or an additional £9 per month @ 3%
£185 per year, or an additional £15 per month @ 5%

on top of what you are receiving from the pension today.

Current £1952pa
£110 / £1952 = 5.6% uplift
£185 / £1952 = 9.5% uplift

So you were in the ballpark with your estimate of 10% uplift...

This will then be subject to Exchange Rate Fluctuations in the future and Pension Income Tax.

I now have to choose a lump sum or an annuity - should be pretty easy, given the figures. Except that they make it clear that if I want the lump sum I have to choose before they tell me the value of the annuity. Welcome to 1984!

In the eighties I worked for ICL for about 7 years, and had a company pension, which I am fairly certain was index-linked, etc. But of course ICL folded, and somehow I ended up with a pension from Northern Telecom in Canada. Of course, next NT went bust, so I ended up with a government-backed 90% of the original, absolutely not index-linked. I get the basic amount already, but with final winding up (NT actually folded about 10 years ago), I am at last being offered the final additional amount, based on the money recovered from the defunct entity's assets. There is a long and tedious story about some lawsuit ("Hughes"); before this was resolved I was offered a "2021 lump sum" of £4289, which they said was based on the funds already confirmed as available. One deduces that since these people are genuine top-level supercompetent financial experts they are correct, and while they cannot say how much extra money will be made available, it can hardly be negative. Except that the "2023 lump sum" is £3713. The alternative is a pension secured according to "insurer pricing and market conditions". Presumably an expert in this grubby trade would have an idea of what sort of amount this might be, but I don't. Does anyone have any ideas on getting a suggestion...?

(OK, actually they do explain that market conditions in 2022 meant that government bonds crashed, reducing the value. My visceral hatred of idiots like Truss has a personal element then. I am basically minded to take the cash, because at least I can't then lose any more.)

[Tkydon]

Meanwhile, the UK state pension will rise 10% this April
I can't help thinking major reforms will happen to the UK state pension in the near future. And not in a good way

Not related... And not if you are already receiving the UK Pension overseas...

Does depend on what country you live in. If you live in Canada, you don't but if you live in the USA you do. I can't quite work the logic of that but even with no index rate rises it is still a good deal with the Japanese pension.

https://www.gov.uk/government/publicati ... ement-with

The US is covered for Cost Of Living increases under its Social Security Agreement with the UK. Canada has a Social Security Agreement, but does not include Cost Of Living increases, and Japan does not have that written into the Social Security Agreement with the UK.