Should I take lump sum now or wait to 65??

scottishsue

Thanks all for your thoughts. My intended use for the money was towards paying off another lump sum of our mortgage as we are trying to reduce this over the next 10 years.

I am confused about the tax liability - perhaps someone could explain.

Also would I be better contacting an IFA and speaking to them?

EdInvestor

scottishsue wrote: »

I am confus is taxable.ed about the tax liability - perhaps someone could explain.

Theree is no liability on the tax free lump sum.The income from the fund (should you take any) is taxable.

dunstonh

I am confused about the tax liability - perhaps someone could explain.

You are taking money out of a tax free environment and bringing it into a taxable one. As the fund will be classed as crystallised rather than uncrystallised, the fund paid on death will be subject to tax (it isnt when uncrystallised).

You only get one bite of this cherry. Take it now when the fund is £27000 and you get £6750. Take it in 10 years when its £70,000 or whatever and you get £17,500

My intended use for the money was towards paying off another lump sum of our mortgage as we are trying to reduce this over the next 10 years.

Effectively you are robbing Peter to pay Paul by doing that. Which will be best will not be known until 10-15 years time but you would expect, looking forward, that remaining invested is the more logical option. Interest rates are very low on mortgages and the yields and growth potential on investments going forward are very good.

We also dont know anything about this pension. Is it personal pension, stakeholder, SIPP, Section 226 retirement annuity contract, section 32 buy out bond, COMP/CIMP etc? How is it invested at the moment? Are there penalties for taking benefits early?

Debt_Free_Chick

McKneff wrote: »

So can i ask a question personally.

When my company changed from a final salary every penny that built up should have been transferred from my FA to a money purchase.

I'm sorry but I don't understand. Your "FA" is your ... Financial Adviser ....? When the company closed its final salary scheme, it could not have forced a transfer to a money purchase scheme. This could only have been your personal choice (to transfer it).

it is so many years that i dont remember what happened. Should the company have paid for any fees etc in the changeover. And if so could you post me a link regarding this. I cant seem to find anything.

You should have been told that you were entitled to keep the final salary pension you had built up already. Or that you could opt to transfer it. This is the same option that applies to anyone who left the company. If you choose to transfer, then that's your choice at your expense.

We really need to see exactly what you were offered at the time, but I'd be staggered if you were told to transfer it at your own cost, with no option to leave it where it was. If you were ... then post back immediately!

McKneff

Sorry DFC it should have been FS final Salary (senior moment)
i actually remember nothing except that we were told that the FS was too expensive and they were changing it to a money purchase. Nothing was offered, we were just told.
There could have been more but i dont remember anything more than that. I should dig out my paperwork. Ha, i dont even remember geting any
I was reminded today that it was 1997.

EdInvestor

When you find your paperwork, do you think you could start your own new thread?Hijacking other people's just makes it confusing for everyone ands is not fair to the original poster.

McKneff

EdInvestor wrote: »

When you find your paperwork, do you think you could start your own new thread?Hijacking other people's just makes it confusing for everyone ands is not fair to the original poster.

Yes, of course, i realised just when it was too late. Sorry all:o

jamesd

scottishsue wrote: »

My intended use for the money was towards paying off another lump sum of our mortgage as we are trying to reduce this over the next 10 years.

It doesn't make sense to do it for that reason. The growth in value of investments within a pension is over the long term usually greater than the interest cost on normal mortgages. So taking the money from the pension makes you worse off by the diffrence between the two. You can't catch up after paying off the mortgage because that happens later and you lose the compounding effect on the growth.

Taking it and paying it back into another pension can make sense, since that can get you a second chunk of tax relief. But you can only take 25% once from each chunk so you'd only be able to take 25% of the 25% that you put back into the pension in the future. That's still a good deal if you need pension income and don't care so much about the capital.

As dunstonh wrote, you get less good tax treatment on the money in the pension if you die once you take the 25% from it. That's less money for your partner and/or children. Stil can be worth doing, though, provided you do reinvest the money.