Pension Help

Jack2015

Hi

I'm approaching 65 and with these new rules regarding taking lump sums out etc was looking for some help regarding a frozen pension. I have just received the figures through the post and i have been given 4 options
1.All benefits taken out with no cash sum
2.Maximum tax free sum and smaller pension
3.Smaller tax free sum
4.Defer payments

I'm a little unsure also what lifetime allowance means as If I took option 1 this would represent 7.33% of my lifetime allowance. Does that mean that when it reach 100% i no longer recieve a pension.

With option 2 is the lump sum they are offering me the maximum 25% for tax free reasons.

Thanks for your help

dunstonh

was looking for some help regarding a frozen pension.

Frozen is a specific term with an actual meaning that can only apply to one type of pension scheme. None of the recent changes affect that type of pension. So, do you really mean frozen or something else?

What type of pension is it?

I'm a little unsure also what lifetime allowance means as If I took option 1 this would represent 7.33% of my lifetime allowance. Does that mean that when it reach 100% i no longer recieve a pension.

There is a maximum pension benefit allowed. These are measured at various points and commencing your pension is one of those. So, they are saying you are using up 7.33% of your allowance now. If you have no other pensions then you have nothing to worry about. Your income doesnt affect the lifetime allowance.

atush

Is this a FS/DB pension or a DC/money purchase type?

Jack2015

Thanks for the replies.

Thanks for clearing up about the lifetime allowance. This will be the only private pension I shall receive. I t was provided by a company I worked for back in the 80's.

I think I would be a Defined benefit pension as the offers on the table are :

A pension of £4500 a year, a cash sum of £11,600 and a pension of £3600 a year, a small sum and bigger yearly payment or to defer it. Just wondered if the £11,600 was 25% of my total pension pot as unsure what my pot would equate to.

Thanks once again both for your replies

atush

It is hard to tell with DB pensions, as most will not have a 'pot' but a set of benefits. There can be a CETV value though. And there are no NEW rules that affect this type of pension.

I personally, would think that unless you are desperate for cash and/or are of ill health, that you should take the highest pension.

If you are ttill working, open a personal pension and pay into it. this type is covered under the new rules and you could take that new pension as cash for a lump sum (25% tax free, the rest taxed as income)

xylophone

Assuming that you are male, do you intend to claim your state pension?

Do you intend to continue working beyond 65?

If you continue to work, and you claim both your deferred DB pension and your state pension, will you be pushed into a higher tax band?

kidmugsy

Here's some arithmetic that you might find useful. I'll start by assuming that you already have an emergency cash fund that's big enough that you don't feel that you must take the pension lump sum. I'll also ignore inflation, annual rises in the State Pension and any other minor complications.

Suppose that you are about to give up work and get a State Pension of, say, £5800 p.a. Suppose instead that you deferred that pension for two years and lived off the £11,600 lump sum instead. When you started the State Pension in two years time you'd get 20.8% more i.e. roughly £1160 p.a. more. That's bigger than the £900 p.a. that you'd have given up by opting for the lump sum.

You'd still (just) squeeze into the 0% income tax band by virtue of your total annual income becoming £3600 + £5800 + £1160 = £10,560.

So deferring your State Pension and funding that with your lump sum might give you a modest advantage over taking the maximum annual pension from your occupational scheme.

As x implied, deferring State Pension might be a bigger advantage to you if you plan to carry on working for a while, letting you avoid income tax on it. Which raises the question: what if you deferred your occupational pension instead? What reward would you get for doing that? Have they told you?

Jack2015

Thanks everyone for your kind help. All your replies have been really helpful and the advice given has provided me with some insight in to pension given to me.

Thanks