Pension lump sum figures

slaterp

Hi
My pension scheme uses a simple calculation for working out the size of my pension pot. It is 20 times my annual pension figure + my lump sum figure (in my scheme I am given 3 times my annual pension).
In simple terms the size of my pension pot is 23 times the annual salary.
I'm assuming this pension pot value is the one used for working out the max lump sum figure i.e. 25% of the pension pot is the max tax free lump sum possible.
If I take my normal lump sum (i.e. 3 times my pension as a tax free sum if I add the value of my AVC to that figure it would exceed the 25% figure allowable as a tax free sum.

Am I right in assuming that I would not be able to take all my AVC out as a lump sum additional to my pension lump sum?

jem16

slaterp wrote: »

Am I right in assuming that I would not be able to take all my AVC out as a lump sum additional to my pension lump sum?

Normally the value of the main scheme would be added to the value of the AVC pot and then the 25% is worked out.

Whether or not you can take all of the AVC pot as your 25% tax free lump sum depends on the actual scheme. Some allow it and some don't.

What scheme is it?

mania112

Seems to me (because it's what you say) that your lump sum is 3x Pension.

That's it, it's not 25% of anything and commutation is not used (which means that you exchange pension for a certain level of lump sum).

Your AVC is different and in this case is can not be used for the main schemes lump sum (i assume). But it will have its own monetary value, and from the AVC you can take 25% tax free. Which is in addition to the main schemes lump sum.

The remaining 75% will be used to buy an Annuity.

jem16

mania112 wrote: »

Seems to me (because it's what you say) that your lump sum is 3x Pension.

My lump sum is also 3 times my pension. However this is not the maximum I would be able to take as it's less than 25% of my total "pot" even with no AVC.

That's it, it's not 25% of anything and commutation is not used (which means that you exchange pension for a certain level of lump sum).

Commutation could be used to increase the automatic lump sum to the full 25%. In most public sector pensions this is not a good deal though. However we don't know what scheme it is.

Your AVC is different and in this case is can not be used for the main schemes lump sum (i assume). But it will have its own monetary value, and from the AVC you can take 25% tax free. Which is in addition to the main schemes lump sum.

It could be though. Some schemes like the LGPS and USS allow the lump sum to come from the AVC pot.

The remaining 75% will be used to buy an Annuity.

Possibly but will depend on the scheme.

kidmugsy

slaterp wrote: »

Hi
My pension scheme uses a simple calculation for working out the size of my pension pot. It is 20 times my annual pension figure + my lump sum figure (in my scheme I am given 3 times my annual pension).
In simple terms the size of my pension pot is 23 times the annual salary.

I'll bet it isn't, I'll bet it's 11.5 times your annual salary.

AlwaysLearnin

kidmugsy wrote: »

I'll bet it isn't, I'll bet it's 11.5 times your annual salary.

What makes you say that kidmugsy? Standard valuation of a defined benefit pensions for lifetime allowance is 20x pension:

http://www.hmrc.gov.uk/pensionschemes/understanding-la.htm

£1.25m/£62.5k = 20

jem16

AlwaysLearnin wrote: »

What makes you say that kidmugsy? Standard valuation of a defined benefit pensions for lifetime allowance is 20x pension:

http://www.hmrc.gov.uk/pensionschemes/understanding-la.htm

£1.25m/£62.5k = 20

That's correct. However the OP said the value of his pension pot is 23 times his annual salary which it is not.

For example if final salary is £40k and 40/80ths service. That would be £20k pension plus £60k lump sum. 20 times £20k gives £400k plus £60k is £460k.

If OP meant annual salary that £460k is 11.5 times £40k which is what kidmugsy was getting at. However I suspect the OP meant annual salary as annual pension.