Confused

Archie911

Hi all,

The new pension rules which come into force next month have got me somewhat confused!

I am 54 years of age (55 in November) and am led to believe I can take a tax free lump sum from my company pension? I am exploring the idea as I have debts I would like to clear. This is extremely important to me as I have gone from a 50K position down to a 27K one from January this year (with the same company) due to medical re-deployment.

My pension statement (based on the 50K salary) stated a maximum lump sum of £100,000 although I would expect this to be now incorrect due to dropping to 27K?

So, would it be sensible to take a lump sum to clear debts and so lowering monthly outgoings? I don't intend taking all the 100K, perhaps just 20K. If I can take any at all of course?

atush

This sounds like a DB pension (ie final salary type). And thr riles for taking a LS are very different and you have to then take the pension. DB pensions are NOT really affected byt he new rules.

But it seems you are still working there?

What kind of illness? Is it life limiting? Do you have a spouse?

Archie911

Thank you for responding atush.

It's NOT a final salary pension & yes I am still with he same employer...just shy of 26 years. The illness was just a bad bout of stress & depression and I volunteered for another position to reduce the risk of suffering with it again.
And no spouse...divorced many years ago.

jamesd

Since this is not a defined benefit pension the maximum lump sum you can take tax free is 25% of the pension pot value at the time you do it. A £100,000 lump sum would mean a pension pot size of £400,000. That may not be the current value, ti may be based on a projection of what it could be if you worked at the higher income level until the retirement age you gave when you joined the pension.

With these types of pension you can choose to take a tax free lump sum from only part of the pension to allow matching the lump sum to the specific amount needed. If you needed £20,000 to pay off high cost debts you could take benefits form £80,000 of say a £200,000 pot leaving you with:

1. £20,000 tax free lump sum.
2. £60,000 crystallised pension pot from which you can't take a tax free lump sum again. You can place this into income drawdown but take no income if you like. If you think you may take ongoing income beyond the 25% tax free lump sum, start capped income drawdown now to preserve your ability to pay in more than £10k a year. From 6 April you can't start new capped drawdown and the flexi-access drawdown alternative will reduce the annual allowance from £40k to £10k if you take even a penny beyond the 25% tax free lump sum.
3. £120,000 uncrystallised pension pot which you can take a lump sum from all or part at any later time.

It's possible that you would need to transfer all or just the part being crystallised to another personal pension to do this, just check what your scheme says about it. Some will say it's fine, others that the only way is to transfer.

Archie911

Thanks James,

As you correctly say, my pension pot IS a projected amount if I'd continued on the 50K salary. I would expect this to decrease as from 1st January this year, I've now gone down to 27K.

As I'm not 55 until November, am I correct in thinking I cannot do anything yet? I should point out that I don't plan on retiring until 2020 and intend to remain with my current employer until then so will continue to pay into the pension pot until I do finally retire.

jem16

Archie911 wrote: »

It's NOT a final salary pension

Is it a Career Average pension?

Your description of your pension being based on your salary of £50k seems to suggest a connection between salary and pension which is normally a Defined Benefit pension. If it's a Defined Contribution pension there would be no link. You may, however, be basing it on contributions.

Perhaps you can clarify?

atush

If your pot is Not a DB pension, it would have a current value. So what is the current value of the pot today?

If it has no value, just a projection at retirement based on years worked re a certain salary, it is a DB pension and you cannot take it at age 55 unless you also start taking the main pension. Which would be highly unwise.

Archie911

Hi Jem,

Yes, I believe it is based on career average?

Does this make much difference as I would need a lump sum to reduce my monthly outgoings now that I'm on a reduced salary.
Also, am I right to presume that I can't do anything until I'm 55 in November?

Archie911

Atush,

Sorry if I come across as a touch stupid but I don't know what type of pension it is? I do know that it's based on my years of contribution & length of service. The figures I've been quoted assume I remained on 50k salary until I retire in 6 years at 60. So confused

jem16

Archie911 wrote: »

Hi Jem,

Yes, I believe it is based on career average?

Yes it makes a big difference. It's a Defined Benefit scheme and is not subject to the new rules.

Does this make much difference as I would need a lump sum to reduce my monthly outgoings now that I'm on a reduced salary.

You will not be able to take a lump sum without commencing the pension.

Also, am I right to presume that I can't do anything until I'm 55 in November?

More than likely although some schemes have a preserved retirement age of 50. However if you do take it at age 55 it may well be reduced by around 5%pa. What is the scheme's normal retirement age?

jem16

Archie911 wrote: »

Atush,

Sorry if I come across as a touch stupid but I don't know what type of pension it is? I do know that it's based on my years of contribution & length of service. The figures I've been quoted assume I remained on 50k salary until I retire in 6 years at 60. So confused

Definitely a Defined Benefit scheme then.