Pension Lump Sum Percentage Question

limejuice

I would like to take a Cash Free lump Sum from my Pension Provider which is normally 25%

But I have a Special arrangement with my former employers whereby I can take 29% instead of 25%

My Pension Provider is happy to let me take this 29% providing I then purchase an annuity, no doubt because they can earn a commission from this.

But under the new rules on Pensions which came out in 2011 I no longer have to purchase an annuity and can opt for drawdown instead.

Drawdown would suite me better, as it is much more flexible and I don't need any income at the moment.

My Pension Provider seems unsure if I can still get my 29% Tax Free Lump Sum if I go for Drawdown and has told me I might only get a 25% Tax Free Lump Sum instead.

Can ayone throw any light on this situation.

Are they trying to put doubt in my mind to get me to take an annuity so they get more commission?

SeniorSam

Although I am unable to answer the question, it would appear that the pension provider you spoke with is not up to date with regulations. You should seek advice from an Independent Financial Adviser who has more pension knowledge.

Sam

dunstonh

If you transfer the pension then you will lose the transitional relief that protects the increased tax free cash amount and it will revert to 25%.

If you were to use the open market option, then you would keep the increased tax free cash level. However, you cannot OMO with drawdown

Are they trying to put doubt in my mind to get me to take an annuity so they get more commission?

Call centre staff dont think like that.

jamesd

It appears that your best option is likely to be accepting the lower 25% lump sum and using drawdown. You appear comfortable and presumably experienced with investing and uncomfortable with the restrictions of annuities.

It's been several years since it was necessary to buy an annuity by age 75. Labour introduced the Alternatively Secured Pension that removed that requirement, leaving drawdown possible at all ages. What this government did is adjust the tax charges on death to make pensions more attractive as an inheritance tax wrapper and change to a uniform structure for drawdown instead of a split based on age.

Before you act, get a definite answer from the pension provider about whether you can get the higher lump sum and still use drawdown. There's no need to act based on their phone staff speculation, get a certain answer.

dunstonh

Before you act, get a definite answer from the pension provider about whether you can get the higher lump sum and still use drawdown. There's no need to act based on their phone staff speculation, get a certain answer.

The problem is that transitional relief is lost on transfer. So, unless the existing plan offers drawdown, then there is little that can be done to avoid it.

jamesd

Makes sense. Hopefully they do offer drawdown as well. I have a feeling that limejuice is likely to have to settle for 25% though.