Pension Commencement Lump Sum

Ander37 · 2 July 2015 at 1:13AM

I will be 55 next year and circumstances (pensions wise) are as follows.

1, I am currently in receipt of an armed forces pension which will more than double next year to around £13500.

2. I have a final salary pension from a previous employer which now resides in the PPF if I access this next year it will give me an income of around £9000.

3. I have a SIPP with AJ Bell.

4. I am in a defined contribution scheme with my current employer.

My hope was next year to draw my PPF pension and take 25% TFLS from it. Also I was hoping to take a Pension commencement lump sum of 25% from my SIPP but not draw any income from it. Funds used to pay off mortgage and daughter starts university (no Lambo for me!).

My question is in three parts:

1. As far as I can ascertain, so long as I do not draw any income from my SIPP, then I can still contribute up to £40000pa into pensions. Is this correct?

2. After drawing out the 25% TFLS from my SIPP can I contribute to again (though I presume if I did I have had my 25% no matter what the fund size ends up as).

3. Will I still be able to take a 25% TFLS from my present employers fund later as intend to remain with them until at least 63. Though I do realise legislation may change!

Apologies if that was a bit long winded but any help appreciated.

TH1878 · 2 July 2015 at 7:00AM

Ander37 wrote: »

I will be 55 next year and circumstances (pensions wise) are as follows.

1, I am currently in receipt of an armed forces pension which will more than double next year to around £13500.

2. I have a final salary pension from a previous employer which now resides in the PPF if I access this next year it will give me an income of around £9000.

3. I have a SIPP with AJ Bell.

4. I am in a defined contribution scheme with my current employer.

My hope was next year to draw my PPF pension and take 25% TFLS from it. Also I was hoping to take a Pension commencement lump sum of 25% from my SIPP but not draw any income from it. Funds used to pay off mortgage and daughter starts university (no Lambo for me!).

My question is in three parts:

1. As far as I can ascertain, so long as I do not draw any income from my SIPP, then I can still contribute up to £40000pa into pensions. Is this correct?

Yes but you have to be careful to not get caught by the tax free cash recycling rules. This will typically occur where your pension contributions significantly increase just before or after you take your tax free cash.

However, to the best of my knowledge, nobody has been penalised for recycling their tax free cash and HMRC have said that normal retirement planning will not be caught by these rules. It also needs to be pre-planned so document carefully what you do with the tax free cash

2. After drawing out the 25% TFLS from my SIPP can I contribute to again (though I presume if I did I have had my 25% no matter what the fund size ends up as).

No, you will get a further 25% on the new money (& growth of the new money) that goes into your pension.

3. Will I still be able to take a 25% TFLS from my present employers fund later as intend to remain with them until at least 63. Though I do realise legislation may change!

Yes.

Apologies if that was a bit long winded but any help appreciated.[/QUOTE]

xylophone · 2 July 2015 at 8:30AM

2. I have a final salary pension from a previous employer which now resides in the PPF if I access this next year it will give me an income of around £9000.

You have checked that you will be able to access this at 55?

TH1878 · 2 July 2015 at 9:12AM

xylophone wrote: »

You have checked that you will be able to access this at 55?

You usually can in the PPF. Early retirement factors apply.

http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/Early_Retirement_periodic_compensation_Factors_Apr_2015.pdf

Ander37 · 2 July 2015 at 11:01AM

Thank you for the replies much appreciated (and liked!), from your points:

I am aware of the recycling rules and intend to pay off a large part of my mortgage with most of it which will obviously be easy to prove. The rest will stay in a bank account and transferred to my daughter on a monthly basis, so again easy to prove. These two extra income sources will mean however that my income will exceed £100,000 from next May, my plan was to put anything over that figure either into my workplace pension or more likely my SIPP (£40,000pa limit won't initially be a problem).

Yes I am able to take the PPF pension early. I have two tranches one with NRD of 60 and one with NRD of 63 and I have used the PPF tables to find out their value and am able to get an exact illustration 6 months before my 55th birthday.

Once again thank you.

Lochar · 2 July 2015 at 11:50AM

Haven't I read elsewhere on the forum that if you are in receipt of a pension (which your point 1 says you are) then you are limited to £10,000 per annum pension contributions ?

atush · 2 July 2015 at 12:06PM

Are you aware of the reduction of your PPF epnsion in taking it early at 55 and taking the lump sum? Would you be better off with the higher income? Is there any great need to be taking all these sums at 55 when you haven't actually retired?

TH1878 · 2 July 2015 at 12:06PM

Lochar wrote: »

Haven't I read elsewhere on the forum that if you are in receipt of a pension (which your point 1 says you are) then you are limited to £10,000 per annum pension contributions ?

No, only if you take benefits (income) under FAD or UPFLS. Scheme Pension and tax free cash only do not count.

kidmugsy · 2 July 2015 at 12:45PM

atush wrote: »

Are you aware of the reduction of your PPF epnsion in taking it early at 55 and taking the lump sum? Would you be better off with the higher income? Is there any great need to be taking all these sums at 55 when you haven't actually retired?

I suspect that paying off a mortgage early will often prove a remarkably extravagant way of using pension money, but the OP makes more than £100k p.a. so what the hell?

atush · 2 July 2015 at 1:27PM

It seems very extravagant to lose 25-50% of a pension just to get a LS and commute a good indexed income.

Ander37 · 2 July 2015 at 3:05PM

The PPF scheme tables show that if I take my 60 tranche 5 years early I only lose 4.9% in total! and taking my 63 tranche 8 years early I only lose 9.8% in total. These figures are from the PPF actuarial factors tables and I also phoned the PPF to confirm their figures. These numbers make it look a very good deal to me as actuarial factors are often of the order of around 5% per annum. The 25% TFLS figures for my PPF pension are a capital sum of £3162 for each £100 per annum compensation commuted, again using the PPF tables. Seems a reasonable deal to my mind.

Kidmugsy, I do take your point about paying off mortgage! I do realise that I may be better investing the TFLS in ISAs for myself and my wife to produce a better return than my mortgage interest rate, currently 3.18%pa and indeed may ultimately do just that. I am however rather debt averse, even though I realise mortgages are a very cheap form of debt.

Thank you once again.

Pension Commencement Lump Sum

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