Pension lump sums

jem16

Bigmoney2 wrote: »

If by taking the full 25% lump sum it would make the pension in payment lower than the minimum income guaranttee then only a lower level of TFLS could be taken.

Thanks.

However the question was probably better phrased as to what providers don't offer a lump sum of some sort?

mania112

I didn't realise we were talking about a FS.

But, there are providers who offer personal pensions, but don't offer Annuities/Drawdown.

Therefore it wouldn't be true to say that you can ALWAYS take TFC (of any amount).

EDIT: Examples of which escape me, but there are a few...

jem16

mania112 wrote: »

But, there are providers who offer personal pensions, but don't offer Annuities/Drawdown.

So what does happen to the pension pot as the whole idea is to provide a retirement income?

mania112

jem16 wrote: »

So what does happen to the pension pot as the whole idea is to provide a retirement income?

Well now you don't have to buy an Annuity so probably nothing happens until a client sorts it out themselves.

Previously, I imagine those providers who have deals with Annuity providers to auto-enrol someone who didn't find their own Annuity.

An example I thought I had was Virgin Money, but they now seem to have a deal with The Partnership.

I remember seeing paperwork that says 'we do not offer an Annuity service'. I've not wondered what happens, because I've always arranged an Annuity for the client anyway.

jem16

mania112 wrote: »

Well now you don't have to buy an Annuity so probably nothing happens until a client sorts it out themselves.

Which would mean a transfer to a provider that did offer annuity/drawdown so access to the lump sum.

mania112

But the question was 'will I be able to take TFC from my current provider'.

You can't guarantee that he can because of the reasons given above. A transfer may need to take place.

We're probably at cross-purposes here, for which I apologise. I missed the FS part and it's gone downhill since then!

jem16

mania112 wrote: »

But the question was 'will I be able to take TFC from my current provider'.

You can't guarantee that he can because of the reasons given above. A transfer may need to take place.

True.

We're probably at cross-purposes here, for which I apologise. I missed the FS part and it's gone downhill since then!

Yes - we're probably just confusing the OP now.

However I was interested so thanks for your answer.

mania112

Talking about Final Salary, your max tax free cash isn't necessarily 25%, the scheme may have decided to base TFC on 'commutation;, which can be calculated like this:

Formula for maximum cash lump sum is >. P x CF….1 + (0.15 x CF)
P = pension before cash lump sum (£30,000)
CF = commutation factor (11)

Calculation
£30,000 x 11 / 1 + (0.15 x 11)
£330,000 / 2.65
Result £124,528.30

Calculate, showing your workings, the maximum pension commencement lump sum available
to Naomi and the resulting reduced pension.

Part 1 - Calculation of maximum cash lump sum
£30,000 x 11 / 1 + (0.15 x 11)
£330,000 / 2.65
Result £124,528.30
The maximum cash lump sum available to her is £124,528.30
But how much pension will this cost her?

Part 2 – Cost of having the maximum cash lump sum
Maximum cash available divide by commutation factor
£124,528.30 / 11
Result £11,320.75 pa
So having the maximum cash lump will reduce her pension by £11,320.75pa

Part 3 – Reduced pension with maximum lump sum
£30,000 minus £11,320.75

Result £18,679.25 pa

Note
Option 1 (maximum pension) £30,000 pa & £0 TFC
Option 2 (maximum TFC) £18,679 pa & £124,528 TFC
Option 3 (mixture) Various combinations in-between