Tax Free Lump Sum

TonkaTom

At the moment you are allowed to take up to 25% of your pension pot tax free.

It seems at every budget there are predictions that this arrangement might change.

If a Chancellor were to announce a change how quickly could he bring it into effect?

Proxy

Theoretically, whenever he wants.

But realistically, there is speculation and nothing more. There has been no hint by any governments or chancellors that this will happen. Commentators can speculate about anything, doesn't make it true.

dunstonh

It seems at every budget there are predictions that this arrangement might change.

Yes, pretty much the same rumour has been rolled out by the media for the last 25 years. Yet it is still here. Indeed, the last major pension changes saw the amount of tax free cash available increased overall (protected rights for example and most retirement annuity contracts). Since then we have had flexible drawdown brought in which allows greater access to. So, there doesnt seem to be any trend to tightening it up. Just the opposite.

Last year, one paper got every single thing wrong in their list of "10 things you will see in the budget".

mania112

If things were to change RE: PCLS (and i don't think they will, but...) I would imagine the amount you could take would increase.

It seems pumping cash into the economy is priority over leaving pensioners with enough cash throughout retirement (as also evidenced by the recently announced increased to annual income levels).

But, as above, I think it'll remain 25% for the foreseeable.

jamesd

Things like that can be changed within an hour but if it concerns you, you can take the lump sum at any age from 55 it it's a personal pension and put it into ISA or other investments so it and the remaining 75% can continue to grow.

TonkaTom

I made inquiries with my pension company and they say I can not take the full 25% lump sum without drawing the full pension.

I do have the flexible option of taking a percentage of the pension and a pro rata share of the 25%.

I am not too concerned with the conservatives changing the rules but the thought of Ed Balls looking for tax revenue to fund a Labour government's spending plans does worry me.

I have been in the same final salary pension for 32 years so the figures are quite high and I'll only be nearly 57 at the time of the next election so I'd take quite a hit taking my pension early.

dunstonh

I made inquiries with my pension company and they say I can not take the full 25% lump sum without drawing the full pension.

That is probably correct for them. Most pension providers do not offer capped or flexible drawdown. You would just transfer it to one that does.

TonkaTom

The company's pension fund do offer flexible draw down but to get 50% of the tax free lump sum I have to draw down 50% of the entire pension.

So I would get a monthly pension cheque as well.

atush

If you didn't need this money, you could just put it into a new pension for later. Otherwise, as told above, you transfer to a company that allows the TFLS to be withdrawn and the rest to go into DD. But you dont actually draw anything down until you want to.

jamesd

No need to do what the company scheme allows. Just ask to transfer it instead. It's a limitation of what the company scheme allows, not a legal limitation. It's easy to find providers who will let you take a lump sum and not any ongoing income.

Your work scheme might even force you to buy an annuity, maybe even from their provider, again, not something you need to do, income drawdown is the correct solution for taking a lump sum without taking an income.

Don't let yourself be restricted to just what your work scheme allows.

I'm assuming that your work scheme is a defined contribution one, where you can select investments. If it's final or average salary type, your work scheme is correct.

quotememiserable

The Pensions regulator would be very much against this change and Mr Osborne will know this too. For final salary type schemes, the cash payment is under-weight in actuarial terms so the funds are better off each time someone takes the cash (which most do). Changing this would increase liabilities and further increase defecits.