25% Tax Free Lump sum

peter.spence

Hope you an help with this query:

I am retiring in October this year aged 65 and am fortunate enough to have defined benefir pensions to look forward to.

I expect £12300 pa from Alliance Boots, £4000 pa from LGPS and £5900 pa from the State pension.

I have AVCs linked to LGPS valued at £16000 and a Clerical medical plan valued at £36000 which has a GMP element as it was a section 32? buyout from a previous DB pension

Do the rules allow me to take these sums as a taxfree lump sum in October as the will, combined, be less than 25% of the cash value of the DB pensions?

Or have I misunderstood the rules?

Thank you

jamesd

The 25% rule applies to each pension considered on its own.

Since your guaranteed income will be at least £20,000 you will be able to use Flexible Drawdown from any personal pensions. This allows the usual 25% tax free lump sum but also allows you to take as much as you like of the rest of the pension pot capital whenever you want to. The part that isn't the 25% is normal taxable income in the year(s) in which you take it.

You should check the lump sum rules that apply to each of those schemes. The defined benefit ones (LGPS and Alliance Boots) may have rules that allow AVCs to be used for the lump sum or may have punitively bad rates to convert income to lump sum, often so bad that it would be a really bad idea to take a lump sum. But this is different for each scheme so you do need to check the rules for each.

Any part of the LGPS AVC that cannot be used within the LGPS for a lump sum could probably be transferred to a personal pension and flexible drawdown used with it, if desired.

The Clerical Medical plan is probably not one that allows flexible drawdown.

You should consider whether and where it's worth making more pension contributions. If no option looks better, exploiting flexible drawdown by setting up a personal pension is a simple enough way of getting a bit of tax gain. Not a huge one - tax relief on the money going in, tax not due on 25% of what comes out, tax due on the other 75%. So you'd save the income tax on 25% of whatever you pay in.

saintalan

Peter Hi and welcome to the forum.

Your situation is somewhat similar to mine a couple of years ago, if you want to know more detail check out this thread but in essence I chose not to take the C&M (L&G in my case) and left it invested with them.

I should at this stage have paid more attention as I am now considering options jamesd mentions. Basically depending on your circumstances make sure what return you might get from C&M if you left it and how you might better use it.

Hope this helps.

Cheers

Alan

gadgetmind

With a jumble like that, all with different rules, then I'd probably pay an IFA a few bob to sort it out!

xylophone

http://www.unbiased.co.uk/ Might be an idea to discuss your situation with an IFA.
http://www.hl.co.uk/pensions/income-drawdown/what-is-flexible-drawdown might be worth a browse for information.

Pixieboy

If you want to post the LGPS standard pension, standard lump sum and value of LGPS AVC fund, I or others on here will be able to assess whether all of the LGPS AVC fund can be taken as a lump sum.
Is the LGPS a deferred pension benefit, or are you retiring direct from LGPS employment? This makes a difference on what you can do with any excess AVCs.... daft anomaly to make life interesting....

peter.spence

Thanks to all who replied

My confusion stemmed from misunderstanding the rules, specifically that you cannot aggregate all your pensions together to arrive at a tax free total to take in cash.

I think what I'll do is take flexible drawdown with the balance and see whether an annuity becomes a more practical option, maybe when QE finishes and interest rates rise

ExBT_Bob

Pixieboy wrote: »

If you want to post the LGPS standard pension, standard lump sum and value of LGPS AVC fund, I or others on here will be able to assess whether all of the LGPS AVC fund can be taken as a lump sum.
Is the LGPS a deferred pension benefit, or are you retiring direct from LGPS employment? This makes a difference on what you can do with any excess AVCs.... daft anomaly to make life interesting....

What's the difference for excess AVC's between the two (Deferred or direct)?

Pixieboy

ExBT_Bob wrote: »

What's the difference for excess AVC's between the two (Deferred or direct)?

When it is immediate retirement from active membership, AVCs can be used to provide additional LGPS pension based on Government Actuary's Department factor tables (this would be subject to Pensions Increase Review Orders, so currently CPI uplift).
This option is not available when a deferred benefit is being put into payment.