Tax free lump sums from two pensions

voddyman

Hi, I'm am now retired and will be sixty in March. I will have two pensions coming out then from two different previous employers when i turn sixty. My question is these two pensions have tax free lump sums, so will I be able to take both the lump sums and put the majority of the lump sums into ISA's, one in my wives name and one in mine and whatevers left into a savings account?
Thanks in advance :beer:

McKneff

Nothing to stop you doing that, as long as you realise that once money goes into anything that bears your wife's sole name belongs solely to her.


Have you checked the new pension rules that come into force next year.

voddyman

McKneff wrote: »

Nothing to stop you doing that, as long as you realise that once money goes into anything that bears your wife's sole name belongs solely to her.


Have you checked the new pension rules that come into force next year.

Yes, I've just had a quick glance at the new rules, I just wasn't sure if I could get take TWO lump sums tax free and also both these pensions will also be giving me an annual pension income as well as the two lump sums that I gain from them.
Fair point about the money belonging to my wife, I may re think that part, lol.

kidmugsy

voddyman wrote: »

Fair point about the money belonging to my wife, I may re think that part, lol.

I wouldn't worry: the divorce judge would probably award her the money whichever name it's in.

P.S. It's worth checking whether it is possible, and whether it would be better value, to turn down the lump sum and take a bigger pension instead. I did the opposite, but that may not be the best bet for everyone.

atush

Exactly. If you are married dont worry as much 'giving it away' as everything would be split anyway.

Only a worry of not married, or if you are married to a spendthrift or gambling type?

Splitting assets usually saves you money.

voddyman

kidmugsy wrote: »

I wouldn't worry: the divorce judge would probably award her the money whichever name it's in.

P.S. It's worth checking whether it is possible, and whether it would be better value, to turn down the lump sum and take a bigger pension instead. I did the opposite, but that may not be the best bet for everyone.

I thought about taking the larger annual pension, but think I'll take the tax free lump sums and draw off them if and when I need to. Bottom line is better to enjoy the money whilst still alive, because if I take the bigger annual pension then die a few years down the road I would never have benefitted from the bigger annual pension.
That sounds a bit morbid but unfortunately its the sad truth eh:( .

jamesd

There is no limit on how many tax free lump sums you can take. If you had a thousand pensions you could take a thousand lump sums.

It is worth considering whether the lump sums are a good deal or not. Often they are a much worse deal than taking a higher pension instead. To know whether this apples we'd need to know how much the pensions would be with and then without a lump sum.

If you want to spend the money it can work out a lot better to borrow the money and repay out of the higher pension payments. Not always, it just depends on the specifics that we don't currently know.

voddyman

jamesd wrote: »

There is no limit on how many tax free lump sums you can take. If you had a thousand pensions you could take a thousand lump sums.

It is worth considering whether the lump sums are a good deal or not. Often they are a much worse deal than taking a higher pension instead. To know whether this apples we'd need to know how much the pensions would be with and then without a lump sum.

If you want to spend the money it can work out a lot better to borrow the money and repay out of the higher pension payments. Not always, it just depends on the specifics that we don't currently know.

Putting the two pensions together here are the quotes,lol.
Option A :- Pension of £9000 per annum and lump sum of £6800
Option B :- Pension of £6700 per annum and lump sum of £44500
Obviously I will be entitled to my government pension on top of that when I turn sixty six in six years
Hope that helps :beer:

LHW99

Other things to consider could be - what widow's pension provision for your pensions provide?
Does your wife have any pension in her own name? If not, maybe use some of the spare lump sum(s) to invest in a pension in her name.

I'm sure someone knowledgable can comment whether that could be better than putting the spare into ordinary savings accounts.

voddyman

LHW99 wrote: »

Other things to consider could be - what widow's pension provision for your pensions provide?
Does your wife have any pension in her own name? If not, maybe use some of the spare lump sum(s) to invest in a pension in her name.

I'm sure someone knowledgable can comment whether that could be better than putting the spare into ordinary savings accounts.

My wife is taking early retirement from her work at Easter and she does have a small pension which she is going to use as her own income for anything she needs

kidmugsy

voddyman wrote: »

Putting the two pensions together here are the quotes,lol.
Option A :- Pension of £9000 per annum and lump sum of £6800
Option B :- Pension of £6700 per annum and lump sum of £44500
Obviously I will be entitled to my government pension on top of that when I turn sixty six in six years
Hope that helps :beer:

Your commutation rate is therefore
(£44500 - £6800)/(£9000 - £6700) = 16.4 For a man of 60 that's so-so. Turn it upside down and it means that you could be doing the equivalent of investing the difference of your two lump sums to get a return of an annuity-like 6.1% p.a., which is pretty good given current circumstances. Tell me: how good is the index-linking of your pensions i.e. the inflation-protection?



Other questions:

(i) Do you have objective reason to expect to be short-lived? (That can be a clincher.)

(ii) Do you have need of a lump sum? (I can see that it's one way to bridge the gap to your State Retirement Pension, but jamesd has suggested another. Just consider how cheap mortgages, for instance, are at the moment.)

(iii) Will reducing your pensions also reduce your widow's pension? (In my case it didn't, which was one reason I was happy to take the bigger lump sum.)