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Take the 25% tax free lump sum?
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artha
Posts: 5,254 Forumite
AS I understand it a 25% tax free lump sum can be taken from a company pension fund in exchange for a reduced pension. What are the arguments for and against this practice?
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Comments
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Depends on the the type of scheme, how much other money you have, your tax position, dependents, other income, your life expectancy and how you want to spend your money.
There is no 100% rule here.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Hi artha,
We could probably be more specific if you wanted to go into your own personal situation, starting with telling us what type of pension scheme you are in (defined benefit or money purchase).
As dunstonh says, it's very difficult to be definitive as everyone's circumstances are different.
However, this might enlighten you a little:
10 reasons why you may not want to take that cash lump sum from your pension
Mike Jones
I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.0 -
One main reason for taking the lump sum is so that you can invest it via the stocks and shares ISA allowance. This provides an excellent flexible pot that you can draw on as needed and it's 100% inheritable by your spouse or family after your death, so it's likely to pay a higher percentage to the spouse or dependents than any company pension scheme.
Whether it makes sense will still depend on the details of the company scheme and how much pension you lose to get the lump sum.0 -
Impossible to advise as others have said without knowing your details.
If you had no savings other than your pension, then taking the 25% cash option could be useful if you might need cash to move house or invest elsewhere for example. But if you already have other investments, cash etc that could be an argument for leaving the 25% in your pension.
In the unlikely event that you are a spendthrift likely to blow the 25% perhaps you might want to exercise self restraint and leave it in the pension!0 -
Is this option available to people in final salary schemes?I'm a retired employment solicitor. Hopefully some of my comments might be useful, but they are only my opinion and not intended as legal advice.0
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Yes, if the Scheme Rules allow (never seen a case where it wasn't!)If I had a pound for every time I didn't play the lottery...0
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okay, that's helpful, Ta xI'm a retired employment solicitor. Hopefully some of my comments might be useful, but they are only my opinion and not intended as legal advice.0
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