transfer or take pension

3pens

Thanks Your Hero
In your opinion s my rough simplistic estimate posted yesterday 9.22 (#4 )flawed ?
Please be assured I have IFA on board but these posts are helpful and decision will ultimately be mine

Daniel54

3pens wrote: »

Thanks Your Hero
In your opinion s my rough simplistic estimate posted yesterday 9.22 (#4 )flawed ?
Please be assured I have IFA on board but these posts are helpful and decision will ultimately be mine

Ask your IFA to calculate the crossover points

The bit you are missing is that £50k of pension oncome is equivalent post tax to £40k of income and/or capital draw down tax free from an ISA

Your_Hero

Daniel54 wrote: »

These numbers don't seem correct,as you can only ever take 25% of a pension as a lump sum.

So if the £50k is correct,the maximum available for commutation should be £12.5k,not £16.8k

Hi Daniel54,

To my understanding, for DB schemes, the max tax free cash is broadly equivalent to 25% of the notional value being crystallised. This uses the "20x" rule. It is only an approximation and the trustees will confirm the exact figures. So if he took pension + LS option, it would be (£33.2k x 20) + £220k = £884k.

25% of £884k = £221k, which is near enough the figure given

In your opinion s my rough simplistic estimate posted yesterday 9.22 (#4 )flawed ?

I haven't checked the calculation and we also don't know what you are quoted for age 60.

Daniel54

Your_Hero wrote: »

To my understanding, for DB schemes, the max tax free cash is broadly equivalent to 25% of the notional value being crystallised. This uses the "20x" rule. It is only an approximation and the trustees will confirm the exact figures. So if he took pension + LS option, it would be (£33.2k x 20) + £220k = £884k.

25% of £884k = £221k, which is near enough the figure given

Thanks for this.I should have been clearer in my post.

Agree the lump sum is broadly consistent with a reduced pension of £33.2k , as per your workings.

The inconsistency is that if £33.2 k is a 75% figure,then the grossed up original pension is £44.2k ,not the £50k the OP refers to.That is more than a rounding difference

Maybe I'm missng something?

Your_Hero

Daniel54 wrote: »

The inconsistency is that if £33.2 k is a 75% figure,then the grossed up original pension is £44.2k ,not the £50k the OP refers to.That is more than a rounding difference

Maybe I'm missng something?

The 25/75% figures do not dictate the reduction in the pension. It is the scheme's commutation rate which appears to be about 13:1 - quite a standard rate for most DB schemes. Does this answer your question?

Daniel54

Your_Hero wrote: »

The 25/75% figures do not dictate the reduction in the pension. It is the scheme's commutation rate which appears to be about 13:1 - quite a standard rate for most DB schemes. Does this answer your question?

Not really I'm afraid.The 25% reduction is set in stone ( and law) and cannot be exceeded,irrespective of the commutation rate.It is not applied to the "cash" value of the pension but to the annual pension payable.

If I look at both of mine,they follow exactly the same format

Either a pension of X per annum

or

A reduced pension of (75% of X ) per annum plus a lump sum of Y

The lump sum Y is 25% of X multiplied by the applied commutaion factor

I know this formulation to be correct,which is why I queried the OP's figures

Your_Hero

Daniel54 wrote: »

Not really I'm afraid.The 25% reduction is set in stone ( and law) and cannot be exceeded,irrespective of the commutation rate.It is not applied to the "cash" value of the pension but to the annual pension payable.

If I look at both of mine,they follow exactly the same format

Either a pension of X per annum

or

A reduced pension of (75% of X ) per annum plus a lump sum of Y

The lump sum Y is 25% of X multiplied by the applied commutaion factor

I know this formulation to be correct,which is why I queried the OP's figures

Interesting. See this link and their worked example: http://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/06/what-is-commutation/

PCLS = Pension ÷ [3/ 20 + 1/Commutation Factor]

Daniel54

Your_Hero wrote: »

Interesting. See this link and their worked example: http://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/06/what-is-commutation/

PCLS = Pension ÷ [3/ 20 + 1/Commutation Factor]

Thank you for the link.I can see why we might have been talking at cross purposes.I also can see that their methodology of first calculating the lump sum is flawed.

They are correct in saying

"It is important to ensure that the PCLS does not exceed 25% of the value of the member’s crystallised benefits"

But for a DB pension,the crystallised pension is the annual benefit and the number used by HMRC for calculating ( times 20) the contribution to the lifetime allowance.

So the starting point for any calculation is the crystallised pension benefit,expressed as an annual income,,and it is to this that the 25% has to be applied for PCLS purposes.

The PCLS commutation factor is determined by the scheme actuaries and is immaterial to the 75/25 allocation

For the purposes of the lifetime allowance if the lump sum is taken,the calculation for HMRC is the reduced annual pension at the point of crystallisation ,multiplied by 20,plus the actual lump sum received.

atush

Givent he amount of pension exposed to HRtax, I think the lump sum option and the smaller pension is a good idea.

Will take a while to get it ISA'd though.