Early retirement

trevor_john

Just got a lump sum quote from my old company private pension.I am just turned 50 and been sent the requested quotes and although not a lot the lump sum would help.I am now running my own busy company and will keep running business for a few years yet.The question is do i have to actually retire to draw this lump sum or can i draw it and carry on working ? Sorry to be a bit thick but just got me thinking :rolleyes:

DiggerUK

No you don't have to stop work to get payment.

By the way, this is the net. Nobody is thick here.

trevor_john

DiggerUK wrote: »

By the way, this is the net. Nobody is thick here.

LOL Thx :beer:

Its just as i said got offer of £10k lump sum now and reduced pension at 65.I run my own company and as MD am classed as employee (as LTD) so obviously money be good now and when retirement really comes my staff will hopefully be my pension . Is it taxable and at what rate please ?

novice-saver

I'm sure somebody who knows what they are talking about will be along directly, but in the mean time -
I understand you can only get the 25% lump sum from the pension when you actually take the pension.
It is tax free.
You can continue working (even for the same company these days).
Reduction in pension paid due to taking it early is a significant slice - due to paying out for another 10 or 15 years (depending on the scheme normal retirement age) of the order 5% per year.

DiggerUK

Trevor,

You thick or what.
Lump sum tax free.
Yum-Yum.

tawl_2

DiggerUK wrote: »

Trevor,

You thick or what.
Lump sum tax free.
Yum-Yum.

The tax free is good .. yes... but i don't think it's as clear cut as people say it is.

When schemes convert pensions into a lump sum, they use a set of commutation factors e.g. £1 p.a. pension is equivalent to £12 lump sum. Conversion rates are notoriously terrible when it comes to reducing your pension (i.e. commuting) for a lump sum. You might think you are getting a good deal but then you might not!

end of the day, it is an option so depends on your own circumstances.

dunstonh

but i don't think it's as clear cut as people say it is.

You are right. Not since A day. Commutation rates on occupational schemes can really play havoc with that old rule of thumb that says take the lump sum.

In the cast of the OP its a personal pension and a general rule of thumb (which isnt always right either) is that if you dont need the money dont take it. Its tax free at the moment. No capital gains, no income tax and not included in the estate of IHT purposes and full value is paid out on death. If you take any form of the benefits, even just the lump sum for now, then you bring it into a taxable environment and that lump sum is a once only option for that money. You wont be able to take another lump from it again.

trevor_john

Thx for the replies.

Dunstonh are you saying that if i take it NOW its taxable as i thought it was tax free

EdInvestor

trevor_john wrote: »

Just got a lump sum quote from my old company private pension.I am just turned 50 and been sent the requested quotes and although not a lot the lump sum would help.I am now running my own busy company and will keep running business for a few years yet.The question is do i have to actually retire to draw this lump sum or can i draw it and carry on working ? Sorry to be a bit thick but just got me thinking :rolleyes:

If this si a personal pension, you can draw the 25% tax free cash now and then put the remaining 75% into 'income drawdown', taking zero income so the money remains invested until you want to take an income from it later.

This usually involves shifting the pension to a SIPP which does drawdown.

https://www.sippdeal.co.uk
https://www.h-l.co.uk

both offer the service.

It is easy to arrange this transfer yourself, no need to fork out big fees to advisors to get it sorted.

Andy_L

trevor_john wrote: »

Thx for the replies.

Dunstonh are you saying that if i take it NOW its taxable as i thought it was tax free

Once you take the pension the, monthly, pension payment (though not the lump sum) is subject to income tax

dunstonh

Dunstonh are you saying that if i take it NOW its taxable as i thought it was tax free

The 25% is currently invested tax free. If you take it out you are not taxed on it but if you dont need it and then put it in a savings account or alternative investment you will pay tax on some or all of it.

The remaining 75% left in the pension will either provide an income which is taxable or if you leave it invested, the returns are tax free but the pot is then subject to a tax charge on death (it isnt if you havent taken the 25%).

So, if you dont need the money, you are better off leaving it within the pension.

It is easy to arrange this transfer yourself, no need to fork out big fees to advisors to get it sorted.

It can be done cheaper than HL under advice. It can also be done more expensively. It is inaccurate to suggest there will be big fees.