Using Lump sum at reitirement

KHurrey

I am looking at early retirement options. I would be retiring 2 years early from Teacher's Pension Scheme. I also have AVC which provides a pot of about £88000. To boost the annuity pot, is it possible to add my lump sum from TP (£32000) to the £88000 before I buy an annuity? I have read that there could be adverse tax implications and charges. Thanks!

Andy_L

Probably not. There are rules to prevent "recycling" ie investing money form a pension back into a pension in order to get double tax releif.

However seeing as you could use the lump sum to buy an annuity directly and probably at a better rate than the AVC as its not "trapped" in a pension why bother?

dunstonh

It may be better to not take the lump sum from the TPS. It may be possible to use the AVC to pay lump sum from that rather than the main occupational scheme.

jem16

dunstonh wrote: »

It may be possible to use the AVC to pay lump sum from that rather than the main occupational scheme.

Unfortunately this is not possible with the Teachers' Pension scheme.

xylophone

Why do you want to buy an annuity?

rpc

xylophone wrote: »

Why do you want to buy an annuity?

^^ This

Why not put the AVC pot into flexbile drawdown and take out money as needed (or as it is tax efficient to do so).

atush

I woud not take any LS from the teachers pension, but instead take max annual pmt.

jem16

atush wrote: »

I woud not take any LS from the teachers pension, but instead take max annual pmt.

That is only an option for those who joined after 2007 and are in the 1/60ths scheme with retiral at age 65. This is not likely to be the case for the OP who is probably on the 1/80ths scheme with automatic lump sum. What I wouldn't do is take an increased lump sum as the commutation rate of 12:1 is dire. However sometimes circumstances dictate an increased lump sum.

KHurrey

Thanks for all your comments! I am on teh 1/80th scheme so will have a lump sum. The reason for asking about adding the lump sum to my AVCs was to boost the monthly income. It is income that is important, not capital...we have other savings. As I suspected, his may not be allowed.

jamesd

Since you want income you should consider recycling a pension lump sum into personal pension contributions, within the rules that limit how much of it you can do. Going no higher than 30% of the lump sum amount is the easiest rule for you to comply with. If you do that into a personal pension and are aged 55 or older you can then take a 25% tax free lump sum and buy a normal lifetime pension annuity. This is likely to be particularly lucrative if you are a higher rate tax payer. It is not correct to say that there are rules that prohibit pension lump sum recycling. You can borrow money or use money from other savings and investments so you can get the pension tax relief while still working.

You can also recycle into the pension pot of a spouse and that may be particularly useful if they are some time from retirement.

You wrote "we". Are you aware that with income drawdown a spouse can inherit 100% of the pension pot and its income with no tax charge or reduction in the pension you get, unlike with an annuity purchase? This better protection for a spouse can be one of the strongest reasons for preferring drawdown over annuity purchase.

If buying an annuity it's worth considering doing so over time and from several companies. It's also worth knowing that now is a particularly atrocious time to be buying an annuity, with fiscal easing and the Eurozone situation substantially reducing annuity payments for life. Deferring and using drawdown for a few years may well prove to be the best course. You could also hedge by doing some purchasing of annuities now and more gradually over the next ten or fifteen years.

If you are female there may also be additional benefit from delaying annuity purchase until 2013 and the full implementation of the gender rules prohibiting using gender as a factor in annuity pricing. Since females tend to live longer than males the result can be expected to be an increase in rates for females when their longer life expectancy can no longer be considered.

KHurrey

Lots to digest! Thank you very much for all your advice!