Enhanced tax free cash – any reasons not to take it?
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chris1
Posts: 582 Forumite
An old policy with enhanced tax free cash option of nearly 40%, instead of the usual 25% - is it a ‘no brainer’ not to take it?
There won’t be a specific need for a lump sum, the whole amount will be used one way or another to provide an income in retirement, either through an annuity, a purchased life annuity, ISAs, or drawdown (or all of these).
Any thoughts please?
There won’t be a specific need for a lump sum, the whole amount will be used one way or another to provide an income in retirement, either through an annuity, a purchased life annuity, ISAs, or drawdown (or all of these).
Any thoughts please?
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Comments
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What is the reduction in annual retirement income if you take the enhanced tax free lump sum? Is it a DB pension or a DC pension with a Guaranteed Annuity Rate?0
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As once you take a pension, your contribution limits are slashed, why not make a contribution equal to the 25% tax free before taking the tax free amount, and you will also get tax relief on that contribution.illegitimi non carborundum0
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What is the reduction in annual retirement income if you take the enhanced tax free lump sum? Is it a DB pension or a DC pension with a Guaranteed Annuity Rate?
Any reduction in income is from the pot being smaller by the said 38%, i.e. a smaller pot to buy a pension annuity, but the money is obviously available outside to buy a PLA.0 -
As once you take a pension, your contribution limits are slashed, why not make a contribution equal to the 25% tax free before taking the tax free amount, and you will also get tax relief on that contribution.
Also I think you'd probably fall foul of the fiendishly complicated recycling rules if you paid in a large lump sum.0 -
As I understand it the contribution limits are only reduced to 4K if you take more than your tax free cash lump sum. Please tell me if I'm wrong!
Also I think you'd probably fall foul of the fiendishly complicated recycling rules if you paid in a large lump sum.
Not if its pre-cycling rather than re-cycling.
No idea whether tax free lump only reduces the limit to £4k or not.illegitimi non carborundum0 -
No idea whether tax free lump only reduces the limit to £4k or not.
It doesn't. And that doesn't change with enhanced tax free cash. If the OP transfers to drawdown and only takes his 40% tax free cash, with no taxable income, he won't be subject to the MPAA.
The rules on tax-free cash recycling can be seen here.0 -
The OP states that the enhanced tfls is actually a fixed amount, so wouldn't the additional payments simply reduce the percentage of the tfls?0
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How come the tax free cash is a fixed amount (rather than a %)? Genuinely interested here.0
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A transfer out to a drawdown contract may result in the loss of the enhanced TFC. Check with the provider. This may mean annuity purchase after the TFC is the only option, which may mean tax benefits gained are lost elsewhere. What is the pension value?0
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