Take full pension or 25% tax free lump sum/reduced pension?

dunstonh

I do now intend to investigate Invesco Perpetual Higher Income, and Guaranteed Equity Bonds with a view to possibly investing some of my capital this way.

Guaranteed equity bonds are rubbish and single fund investing is old fashioned and been the cause of many investments not performing as well as you would have wanted. The Inv perp fund may be good but you wouldnt put all your investment money in it. A spread gives a better selection based on risk and also diversifies more.

jamesd

Stephenbw, that 8.1% suggests that you're calculating as though you're a higher rate tax payer but the pension income you've given makes you a basic rate tax payer. In any case, this doesn't matter much because your lump sum could be placed within a stocks and shares ISA within a few years at 7000 this year and 7200 a year from next year so the income would be tax free and would only need to be above 5.49%. Not hard to manage that with a range of investments. If you're married you could use the S&S allowances of both of you to move it into S&S ISAs faster.

What you'd do to mix investment growth with the mortgage payments is select some investments that pay regular income (like the income rather than accumulation version of Invesco Perpetual Higher Income) and also periodically top up a savings account with capital withdrawing or use of some money in a savings account. The investments paying regular income would be the ones to put in the ISA tax wrapper first.

As dunsonth notes, just using Invesco Perpetual Higher Income would be a mistake, even though it has been good. I suggest that you read Ok then - How do I choose a S&S ISA to get an idea of what a sector allocation is and how you can get started with using a stocks and shares ISA. It's not as hard as it looks once you've started doing it. Invesco Perpetual Higher Income would probably be a good core fund for you, but definitely not sufficient on its own.

GEBs aren't a good idea - not really much of a guarantee but significantly reduced returns. Take a look at this post and the related discussion.

Your calculation for income from the extra lump sum seems to be ignoring inflation so you don't get just 1-2% income from it after inflation if you use savings accounts. You'll need to use funds like those in a S&S ISA to get returns high enough to make taking it worthwhile. Those funds can be held outside the ISA, subject to CGT and tax on distributions. The lump sum definitely can make you better off, but you have to be using mostly equity funds to do it, combined with some property and fixed interest.

royeee

jamesd wrote: »

royeee, if your taxable income will be above 20,000 and below 25,000 without taking the lump sum then you may avoid age allowance reduction and an effective tax rate of 33% on income between those values. Stocks and shares ISA investing is the obvious first choice for the investments to produce ongoing tax advantaged growth and income.

jamesd, sorry I omitted to say that I'm retiring at 60 so the age allowance won't come into it till 65 and neither receive state pension till then. If I'm going for lump sum and likely will, I agree that the first part would go into stocks/shares ISA for self and spouse (circa £14k), the rest of the lump sum will take a bit of thinking how best to utilise probably part fixed savings and part liquid savings. I've nothing to pay off.

royeee

This link to what I think is a constructive article taking in more angles to making the lump sum decision, in some ways I'm none the wiser after reading this!

http://www.iii.co.uk/articles/articledisplay.jsp?article_id=3972579&section=Pensions

bricmic

I recently took my 25% tax free amount on reaching my 50th birthday in May.
The fund at that time was valued at £240000 and therefore reduced to £180000.
The majority of the remaining amount is invested in gartmore china opportunities and Allianz BRIC funds and since that time has increased in value by approx £40000.There has also been a further contribution of £20000.
Am i correct in assuming that I can take a further 25 % of the £20000 but not 25% of the additional £40000 profit.thanks

geoffW

It's a good idea to take a lump sum, I did. But I wish I hadn't put it into stocks and shares as I lost a great deal of it and had many sleepless nights.

dunstonh

bricmic wrote: »

I recently took my 25% tax free amount on reaching my 50th birthday in May.
The fund at that time was valued at £240000 and therefore reduced to £180000.
The majority of the remaining amount is invested in gartmore china opportunities and Allianz BRIC funds and since that time has increased in value by approx £40000.There has also been a further contribution of £20000.
Am i correct in assuming that I can take a further 25 % of the £20000 but not 25% of the additional £40000 profit.thanks

What was the point of taking it?

You have put your fund into a 33% taxable environment when it was tax free before. You dont appear to have needed the lump sum having stuck £20k back in again.

Wouldnt it have been better to leave it where it is?

Primrose

I also took my pension lump sum and invested it over a couple of years in various equity income ISA's, having the income reinvested. So at least if I pop my clogs prematurely my other half will have the permanent benefit of that money and part of it won't have been lost in the reduced 50% spouse's pension. And don't be too downhearted geoffW, you may find that in the longer term you'll regain some of that money. But if you really can't sleep at nights, perhaps you should slowly start transferring some of it into safer investments, although then you'll lose out to inflation rather than stock market volatility.

bricmic

Of the 25% tax free ie £60000 I used mine and my wifes isa allowance totalling £14000 and paid £30000 off my mortgage the rest i spent on two holidays in Barbados and Dubai
The further contribution of £20000 was made by the company not me personally
However is anyone able to answer the original query ?

Tr@cker

I'll be in this situation myself soon but as im in good health, fit and retiring at 55 i'll be increasing the pension as much as i can just couldn't be @rsed to complicate things with an rpi increase each year.