Old employer closing scheme = Options

kidmugsy

Having absorbed some of the lessons taught above: Option 1 might be attractive since the taxed part of the payout could be put to (say) ISAs or recycled into pensions to give another go at getting a tax-free lump sum. (There are limitations on recycling the tax-free lump sum into pensions though I'd guess (I'm no longer up-to-date on this) that they wouldn't constrain the sort of modest sum we're taking about here.)

hyubh

jamesd wrote: »

You can perhaps do things like buying extra years in LGPS or paying LGPS AVCs with it

The former won't be an option, and while the latter will, it won't be in terms of investing a lump sum - an AVC would be set up as a regular deduction from payroll.

jamesd

I assume it's easy enough to have that reinvesting of the lump sum done as a regular deduction over a year or so, if desired?

I don't necessarily agree that it should all go into a pension, though that's one easy decision if there's no other use for the money. Paying off a mortgage wouldn't be a great idea. Paying off high cost debts then later paying into a pension might be OK, depends on rates. Just depends on the whole set of circumstances, as usual.

philatio

No debts. No mortgage. So if I go Option 1 it would be a case of putting it into a new pension or other (better?) investment.

JoeCrystal

philatio wrote: »

No debts. No mortgage. So if I go Option 1 it would be a case of putting it into a new pension or other (better?) investment.

Hang on! How come is putting Option one (after paying taxes) into a pension is better than Option two where you can transfer the full value?

Cheers,
Joe

jamesd

At least two reasons:

1. 25% tax free lump sum. That can be reinvested and tax relief will be received on it even though no tax was paid on the way out. So the same gain as you can get from recycling a pension commencement lump sum, but available at any age.
2. Paying into a new pension may be via salary sacrifice, producing NI gain. I don't know whether the LGPS AVC system does this.

mania112

You aren't allowed to recycle tax free cash.

He would also need to have relevant earnings to receive tax relief.

jamesd

mania112 wrote: »

You aren't allowed to recycle tax free cash.

That is not correct:

1. This is a winding up lump sum. The "Recycling of pension commencement lump sums" rules that you are probably thinking of do not apply because this is not a pension commencement lump sum.

2. Even if this was a normal pension commencement tax free lump sum, recycling is also allowed subject to the limits and other rules. The easiest limit is the up to 1% of the lifetime allowance one, which is currently £15,000 worth of pension commencement lump sum that can be recycled. But that can be exceeded if the money is within any of the other conditions for it to be fine.

gele

Hi Philatio, Im in a very similar situation as you, [including the Standard life option but I have less in my pot] and posted a similar question. I was redirected to your post and having read it think taking the cash and then reinvesting is the way to go. My current pension is a LGPS and I'm considering buying extra pension and/or AVCs. I'm interested to know your thoughts and what decision you came to.