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What to do with Cash Lump Sums for best returns.
Comments
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tigerspill wrote: »Can you not take 25% of the pension pot as a lump sum tax free when you retire?
Yes. That too!
(Post amended)0 -
Max I can take is 25% which at present is £132K. I've paid in since April 2014 when the figures were given to me and will be paying in until June 2015. So I'm expecting a bit more than £132k. Plus a pay rise is pending from Jan to June for 2015. New figures will be provided in April 2015.0
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Max I can take is 25% which at present is £132K.
That didn't actually answer my question.
What I asked is how much pension do you give up to get the larger lump sum? That is known as the commutation rate and is crucial in knowing whether or not taking extra lump sum is a good idea or not.0 -
Yes I'm on a final salary DB scheme.
Old skool I.C.I. pension scheme that I've been in for 37 years. ;)Thank you I.C.I
Taking max lump sum may not be the best option. Hence the question asked about commutation factor.Max I can take is 25% which at present is £132K.
Final salary schemes do not have a 25% tax free lump sum. They have a commutation factor.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
At the risk of sounding patronising are you Defo still on DB? I suspect we may work at the same place and a few years ago the company moved to dc and all sort of options were in table including staying DB, Transferring to dc (with cash value equivalent) or being a deferred member of DB (essentially a bit of both) - reason I ask is that your talk of 25% sounds like dc.
Advice from the blokes in work may not be the best as everyone's circumstances and arrangements are different.Left is never right but I always am.0 -
Taking max lump sum may not be the best option. Hence the question asked about commutation factor.
Final salary schemes do not have a 25% tax free lump sum. They have a commutation factor.
But many Final Salary (DB) schemes are comprised of a lump sum and a regular monthly income payment.
For example 3/80 of salary for each contributing year as a lump sum plus 1/80 of salary for each year as a yearly income.
Some schemes also allow you to salary sacrifice additional payments into an AVCs to build up an additional independent lump sum.
So as I understand it in these schemes you can take a lump sum without a commutation (main lump sum and/or the AVC part).
So does it not come down to the details of the specific pension scheme and its benefits and what has been contributed?
Or have I got my understanding wrong?0 -
tigerspill wrote: »But many Final Salary (DB) schemes are comprised of a lump sum and a regular monthly income payment.
For example 3/80 of salary for each contributing year as a lump sum plus 1/80 of salary for each year as a yearly income.
The schemes with an automatic lump sum would still have to commute to get the maximum 25% tax-free lump sum as the automatic lump sum is not the full 25%.Some schemes also allow you to salary sacrifice additional payments into an AVCs to build up an additional independent lump sum.
So as I understand it in these schemes you can take a lump sum without a commutation (main lump sum and/or the AVC part).
No mention of AVCs from the OP though.So does it not come down to the details of the specific pension scheme and its benefits and what has been contributed?
Or have I got my understanding wrong?
No you are not wrong, hence the questions. The OP does mention being able to take all pension and no lump sum so there is definitely a commutation factor present. It's important to ascertain what that is to see if it's worth giving up valuable index-linked pension for it.0 -
The schemes with an automatic lump sum would still have to commute to get the maximum 25% tax-free lump sum as the automatic lump sum is not the full 25%.
OK - so this is the bit I don't understand.
So the tax free thing is based on 25% of the total pension value. With a DB, this total value is based on a multiplier on the income part (maybe 20 x yearly income) plus the lump sum.
If say for example, using this, the lump sum part is 25% (or more) of the total pension pot, would you not be able to take that 25% lump sum without commutation on the ongoing income?0 -
tigerspill wrote: »If say for example, using this, the lump sum part is 25% (or more) of the total pension pot, would you not be able to take that 25% lump sum without commutation on the ongoing income?
Yes but it is very unlikely that the automatic lump sum is anywhere near the full 25%.
My automatic lump sum worked out at around 12%.0
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