Threat to 25% lump sums

Orwell

I've read various predictions about what the Labour party (and others) might do to the current 25% tax free lump sum from DC pensions (i.e. cap it at £37k for example).

As someone who could take a fair amount more than £37k as a tax-free lump sum if I was to take it now (I am just 55) - is it a good idea to do just that, as a pre-emptive measure before the next election?

I was thinking of - transfer most of my company DC pension to a SIPP, put that SIPP into capped drawdown with zero income (or flexible drawdown after April 2015 but also with zero income), taking just the TF lump sum in the short term.

I understand that if one does NOT take any income (beyond the lump sum) then one may continue to contribute to other pensions as normal (in my case around £25k a year). But if one takes any income then the new £10k contribution cap would apply (which I don't want).

Any comments on (a) the facts as stated and (b) the concept of pre-empting future TF clampdowns?

C_Mababejive

The Labour party is the real enemy of working people, not the Tories. Vote Tory,better the devil you know.

jamesd

It's my usual suggestion here to take the lump as soon as possible to reduce legislative risk and also reduce the lifetime allowance percentage used.

Your understanding of the rules from April 6 2015 isn't quite right. A person who enters capped drawdown can take the GAD limit income from that and all other personal pensions without triggering the reduction from £40,000 to £10,000 for personal/DC pension contributions. That's another reason for you to start capped drawdown this tax year, more flexibility for you.

there are some differences after you've taken benefits:

1. No more access to a serious ill health lump sum. Before taking benefits you cant take the whole pot tax free if diagnosed with a medical condition giving you less than a year life expectancy.

2. Different death benefits. Use life insurance to cover this if it matters to you.

kidmugsy

C_Mababejive wrote: »

The Labour party is the real enemy of working people, not the Tories. Vote Tory,better the devil you know.

Much though I enjoy digs at Mr Moribund, and Ed "Krystal" Balls, I don't think this is the place for "vote for this lot, not that lot". On the other hand, wot the hell? I'll have a bacon sandwich, thank you.


Where was I? Ah yes, getting out a tax-free lump sum early. Why not? It's an insurance policy that costs effectively zero, unless you are interested in, for example, the inheritance implications of dying with a large, uncrystallised pension pot. Anyway, would the new inheritance flexibility survive a Moribund/Balls government?

atush

Labour are the the enemy of most taxpayers but that is neither here nor there.

Would labor be elected if they said they would do such a thing, or would they in fact be in for only one term as surely that is a HUGE loss of votes in such a policy? Esp as there is now auto enrollment? Who votes more, pensioners or young people? I rest my case.

The only votes they would get are those from anyone who did not work and are on benefits?

dunstonh

I've read various predictions about what the Labour party (and others) might do to the current 25% tax free lump sum from DC pensions (i.e. cap it at £37k for example).

There have been various groups saying that TFC may be on the way out since personal pensions set it at 25% in 1988. To be fair, under the last Labour government the tax free cash was extended and not reduced. There isnt really much pressure to tax it.

kangoora

How would this work - if I take a 25% TFLS at 55 does the pot at the time get set aside and somehow flagged as having had the TFLS taken from it?

If I then continue to work and pay in some fairly substantial sums for, say, the next 5 years, can I then take out another 25% TFLS on the extra money I contributed after taking the original TFLS?

jamesd

Since it appears that there is in Labour camp some consideration to capping the tax free lump sum at a level that corresponds to only a £3,000 a year inflation-linked annuity pension pot size or possibly 25% tax relief it'll be interesting to see whether they do try to have such things in their manifesto. Last time around they dodged, saying that they supported tax relief for pensions but not what the details of that support were.

jamesd

kangoora wrote: »

How would this work - if I take a 25% TFLS at 55 does the pot at the time get set aside and somehow flagged as having had the TFLS taken from it?

Yes.

kangoora wrote: »

If I then continue to work and pay in some fairly substantial sums for, say, the next 5 years, can I then take out another 25% TFLS on the extra money I contributed after taking the original TFLS?

Yes.

In almost al pension setups the two parts will be kept as two independent pots until you take benefits from the second one, at which point most places will merge the bits that you take.

HarryD

Sounds like another good reason for not putting all your savings eggs in the SIPP basket. Who knows what a future (e.g. Labour, SNP, LibDem coalition!) government might do to pensions, LTAs, tax relief, lump sums...

A balance of SIPPs and ISAs spreads the risk.

atush

but the balance should tip in pension favor under current and the upcoming rules.

I really think it is silly to make retirement provision based on rumor and fear.