Lump sum

kenshaz

My wife is about to receive a county council pension,it is ill health retirement,and she has an option in addition to the £20,000 lump sum and £6800 per annum,she could also take an additional lump sum ,for every pound she gives up ,she would receive twelve ,for example give up £2000 a year and receive £24000.
I would appreciate the thoughts of others.
Ken

macca64

Depends on what is important to you and your wife. If you take £24,000, that will give you an income of around £1,200, compared to the £2,000 income per year you will be giving up.

However by giving up the income you will have access to your capital which would otherwise be lost if you take the income.

You'll have to decide in having access to the capital is important to you.

HTH
Steve

EdInvestor

Tax is also relevant: money taken as a lump sum can be invested for tax free income whereas pension income is taxable.

Taking into account personal allowance and age allowance of just over 7k (from aged 65) and the 10% band, you may want to try to limit taxable pension income to around 9k to take advantage of the tax allowances: however you also need to take her state pension into account in the total.

If the ill health is likely to affect her life expectancy, then taking more money upfront in cash would likely be sensible.

kenshaz

EdInvestor wrote:

Tax is also relevant: money taken as a lump sum can be invested for tax free income whereas pension income is taxable.

Taking into account personal allowance and age allowance of just over 7k (from aged 65) and the 10% band, you may want to try to limit taxable pension income to around 9k to take advantage of the tax allowances: however you also need to take her state pension into account in the total.

If the ill health is likely to affect her life expectancy, then taking more money upfront in cash would likely be sensible.

Valid points.The tax implications are a consideration.She is presently in receipt of her state pension,and will 65 in 2009.
If she took the £24,000,her Isa's have not been used for this year,what are the other tax free avenues for the investment for income of the lump sum.

kenshaz

The post by ED has given us another perspective and we are re-valuating the situation.We need a link to a site that will give us a comprehensive break-down of tax allowances up to and beyond 65 including thresholds or perhaps ED could go into more detail,does he need more information.

Andy_L

£12 lump sum for £1 pension is a poor deal (you cant buy that pension going the other way) so it depends how important the lump sum is to you.

macca64

For tax rates and allowances etc see https://www.hmrc.gov.uk

You can invest £7k*2 to use up both ISA allowances, so that will use £14k up this tax year and another £14k on 6th April for the next tax year, so possible to invest £28k sheltered tax free over the next 4 months.

You can either split the £7k allowances into 3k cash and 4k stocks and shares or the full 7k into stocks and shares isa.

HTH

EdInvestor

...what are the other tax free avenues for the investment for income of the lump sum

Income ( ie dividends) from direct investment in equities or equity funds is tax free for basic rate taxpayers.Capital gains are only taxable if you sell shares/funds and actually realise the profit and it is more than the 9k a year tax free allowance.

Depending on the makeup of the investment portfolio it may be best to use the cash ISA plus the investment ISA, with the latter sheltering either bond or property fund income investments (where income is taxable), leaving tax free equity investments outside.

Since it will be possible to convert cash ISAs into investment ones later, you can adjust the position later if appropriate.

kenshaz

We took the lump sum ,ING fixed at 5.80 for six month until we can make some further decisions.

dunstonh

Income ( ie dividends) from direct investment in equities or equity funds is tax free for basic rate taxpayers.

No it isnt.

EdInvestor

Just to clarify the position, dividends, plus the 10% tax credit that comes with them, are taxable as income at 10% for those on basic rate.But the 10% tax credit pays the tax for you, so effectively they are tax free.

The only situation where this might not be the case is if your income is between 20k and 25k, where the divis could affect your age allowance, resulting in clawback.If this might be a problem, put any shares or funds with a high dividend payout in your equity ISA.