What do people do with their pension tax free lump sums?

Murphy_The_Cat

cogito wrote: »

Buy a motor home and use it for years, get most of your money back when you sell it - not a bad investment at all. Wish I'd done it when I think about how much I've spent in hotels.

Just be wary when you start ticking the boxes on the "options list" ! I understand that motorhomes are now outselling caravans by 2-1 and looking at the roads in the southern Lake District, that sounds about right.

jaybeetoo

I’ve been putting some of my TFLS into my wife’s and my ISA to generate a tax free income.

MastG

Hopefully in 20 months time my company AVC will supply me with a £52K lump sum which I intend to take tax free, and leave the db company pension to provide an income.

What you should do depends on your situation (money and healthwise).
I intend splitting the 52k
2k instant cash savings acc
3k premium bonds (a top up)
7k holidays for year
40k into isa over 2 years (mostly into bonds as I am predominantly in equity index trackers, this should give me £340,000 in the isa)

Goodluck
Gary

enthusiasticsaver

My DH took his maximum lump sum which was over £100k. His pension was over the tax allowance so we considered more tax efficient ways of investing it.

Invested in stocks and shares isa for both me and him over 3 years with years 2 and 3 Bed and ISA from unwrapped investments. Transfer into sipp in my name over 3 years again with some being invested in Income funds in my name to avoid paying tax on it.

Keep some as cash buffer to supplement pensions and avoid need to draw on investments in early years. Big holiday. New Kitchen and bathrooms. We had to buy a new car to replace DHs company car. We still have substantial cash buffer to supplement pensions until state pensions pay out.

stephenadarglas

I kept the full pension rather than take the maximum lump sum. Simply because I retired atd sixty and could have a long retirement. The lump sum I did receive I spread around S&S ISAs to keep the non-tax wrapper for both myself and wife.

wiseonesomeofthetime

stephenadarglas wrote: »

I kept the full pension rather than take the maximum lump sum. Simply because I retired atd sixty and could have a long retirement. The lump sum I did receive I spread around S&S ISAs to keep the non-tax wrapper for both myself and wife.

How did you keep the full pension AND receive a lump sum?

Just curious.

I retire end of this year and considering my options too. :beer:

chucknorris

wiseonesomeofthetime wrote: »

How did you keep the full pension AND receive a lump sum?

Just curious.

I retire end of this year and considering my options too. :beer:

Pensions change over time, for example the TPS (teachers pension fund) has gone through various different schemes, where you had to take a TFLS, then it became optional. So if you were in both schemes you had both rules. That doesn't apply to me, mine is all optional, and only under a plausable threat of death would I refuse to take the TFLS. But of course I would take it from my SIPP.

MarkCarnage

For me, it was a decent commutation rate, took me below the higher rate tax threshold (for now) and that is a lower bar in Scotland.

Couldn't use it to top up SIPP due to Lifetime Allowance issues.

Will need some of it within 2-3 years for:

House refurb work
Gifts to kids for first houses
Replace car (not new, and certainly not a Lamborghini!)
One or two holidays
Some good wine, but to drink over next 10 years, not some dodgy wine 'investment' scheme....

This cash went into topping up Premium Bonds to maximum, plus some in NS&I account, some still in current account as can't be bothered moving it where the cashflow requirement is very short term.

Most of the rest into ISA over next 3 years to use up allowances.

Happy to err on the side of being quite liquid right now, as I think we're now hitting a new investment paradigm/cycle, which could see some stress tests being invoked....I think that neither equities nor conventional bonds will perform particularly well in the next 5 years, with the tail risk skewed downwards. I added some US TIPS and a gold bullion fund in a small way to my portfolio recently.

EDIT - to clarify, I was already quite fully invested in equity based ITs, with some Wealth Protection ones before getting the TFLS, so cash holding from this is all relative. Maybe 15% liquid overall.

DairyQueen

skycatcher wrote: »

If you are in the fortunate position to get a tax free lump sum of say around £100k at 60 that you have no immediate/short term plans to use, have no debts etc where do you put it?

Should you be putting it into a low cost tracker in a S&S ISA or a bond ladder or Ernie?

Just interested in the variuos routes people have gine down to try and protect its value.

What do you define as 'short term'? For me, that means < 5 years. if so, too short a timescale for S&S. If your objective is to protect its spending power I would seek inflation-matching/beating cash accounts:

The usual suspects:
1) Interest bearing current account feeding regular savers.
2) Bond ladder.
3) If applicable for non-earners, £2,880 each year into a SIPP and accrue the £720 tax relief each year. Inflation-beating even if held in cash inside a pension wrapper at negligible interest for 5 years.

I don't bother with Ernie. I don't gamble with our cash, and especially given that the likelihood of the return beating retail savings isn't great.

The quest for inflation-protecting cash now takes much more of my time than managing our S&S portfolio. Aside from emergency cash and drawdown buffer, all is ear-marked for spending within 5 years.

MarkCarnage

I don't bother with Ernie. I don't gamble with our cash, and especially given that the likelihood of the return beating retail savings isn't great.

It's not a gamble in a conventional sense - stake money back and if you hold the maximum you will pretty much get the average rate of return if held for a couple of years - which will probably beat a good retail savings account for a higher rate tax payer.

Mine is there for the time being, will probably reduce it over time.

Inflation hedging is indeed a challenge, though better to lose a little on inflation over a 5 year period than take a bigger hit by investing it where you shouldn't be putting short term money. If inflation is 3% and you get 2% on your savings it's not the end of the world over that time frame.