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    • rubble2
    • By rubble2 15th Sep 17, 3:43 PM
    • 270Posts
    • 45Thanks
    rubble2
    25% tax free lump sum
    • #1
    • 15th Sep 17, 3:43 PM
    25% tax free lump sum 15th Sep 17 at 3:43 PM
    I went for a meeting with a Pension Wise advisor this morning and one thing that came up which I should have asked for further information about but didn't was regarding the 25% tax free lump sum on my pension schemes.

    I have two pension schemes, one is a defined benefit scheme and one is a money purchase scheme.
    The transfer value for the money purchase scheme is £70,000 which allows me the option to take 25% as a lump sum, they have quoted £17.5K for this which ties in with the transfer value.

    The defined benefit scheme has also given me the option of a £17.5K lump sum but haven't as yet provided me with a transfer value (they are in the process of getting this figure to me).

    Because the two schemes offer the same lump sum I assumed that the DB scheme would also be worth approx £70K, but the pension wise advisor told me that the figure for the DB scheme would be about 20 x the pension offered which works out as about £130K. This is good news but I wondered how (if the £130K value is correct) they arrive at a 25% tax free lump sum of only £17.5K?

    I have to say that the advisor told me that there is no actual fund value as such with a DB scheme, more a case of my share of the overall fund value and I should say that I do not intend to take advantage of the Lump sum from the DB scheme nor do I intend to transfer it out but wondered how the figures are arrived at?
Page 1
    • xylophone
    • By xylophone 15th Sep 17, 3:58 PM
    • 23,426 Posts
    • 13,621 Thanks
    xylophone
    • #2
    • 15th Sep 17, 3:58 PM
    • #2
    • 15th Sep 17, 3:58 PM
    See
    http://www.scottishwidows.co.uk/Extranet/Literature/Doc/techtalkDB-2017-04


    Do you have a copy of your DB scheme booklet?

    This should tell you how your pension accrues, whether or not there is an automatic lump sum on taking benefits and whether or not you can commute part of your pension to provide a higher lump sum.

    The "commutation factor" depends on the rules of your scheme.

    It should also give some information about any actuarial reduction for taking the pension before normal scheme pension age.


    http://www.pruadviser.co.uk/content/knowledge/technical-centre/pension_commencement_lump_sum_tax_free_cash/
    • jennyjj
    • By jennyjj 15th Sep 17, 9:48 PM
    • 216 Posts
    • 337 Thanks
    jennyjj
    • #3
    • 15th Sep 17, 9:48 PM
    • #3
    • 15th Sep 17, 9:48 PM
    The defined benefit scheme has also given me the option of a £17.5K lump sum but haven't as yet provided me with a transfer value (they are in the process of getting this figure to me).... the pension wise advisor told me that the figure for the DB scheme would be about 20 x the pension offered which works out as about £130K. This is good news but I wondered how (if the £130K value is correct) they arrive at a 25% tax free lump sum of only £17.5K?
    Originally posted by rubble2
    Typically, the standard lump sum on a DB scheme is 3 x annual pension. Often, there is the option to opt to take a MUCH bigger lump sum and a smaller pension. If you transferred out ( generally considered unwise ) you could take 25% of the cetv out tax free.
    ps. read up this forum on actuarial reduction. It isn't always the bad deal you might expect it to be.
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