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

iglad

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:

He didn't he just took the full pension and said no to the TFLS and reduced pension.

Mnd

Mine was used to pay my divorce settlement. Not complaining, I was able to keep the house because of this

DairyQueen

MarkCarnage wrote: »

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. .

Good point. Different strategy required for those who pay HRT. Given that the personal savings allowance is halved there is also a case for ISA-wrapped cash..

A non-taxpayer/low-earner spouse is also handy for those who pay HRT as the £5k starting rate for savings enters the equation.

MarkCarnage wrote: »

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.

Agreed. We currently have a chunk of pension-wrapped cash ear-marked for front-loading drawdown from April next year. It's been languishing there since late last summer earning diddly squat. Better to resist the prospect of short-term market gains than risk a drop.

We also have a six-figure sum in unwrapped cash that has just about held-up against inflation. That has been challenging. The most recent drops in retail rates are now testing the resolve of even hardened rate-chasers. Let's hope the BoE's anticipated rate cut doesn't happen.

Those with modest savings - especially retirees - are worst hit by central banks support for borrowers. Little mention of this in the mainstream press. Prolonged QE is tempting savers into riskier and riskier investments and enticing borrowers to take on more-and-more debt.

The pack of cards will crash at some point,

cfw1994

I’d stick it all in some safe peer-to-peer investments.

Just kidding:rotfl:

Mind you....Kuflink has worked well for the tiny sum I have there, so I wouldn’t dismiss popping a little more I n there. No protection and some collapses have perhaps weakened them as an attraction though

Well, we decided we would pay off our mortgage with a small chunk we crystallised. Almost certainly not the wisest fiscal move, I know, but felt like a good step towards some form of retirement in the near future!
Invested some into ISAs....helped kick start the kids long term savings.....

For short term, I would use premium bonds. Yes, likely to lose a bit to inflation, & I think many here don’t think they are a good plan......but then mainline accounts struggle to get over 1.5% these days: I don’t mind a small “gamble” on a highly unlikely win with the guarantee the capital is safe and easy to get my hands on. 2019 I managed to get around 3%...which was unexpected!

DairyQueen wrote: »

Those with modest savings - especially retirees - are worst hit by central banks support for borrowers. Little mention of this in the mainstream press. Prolonged QE is tempting savers into riskier and riskier investments and enticing borrowers to take on more-and-more debt.

The pack of cards will crash at some point.

I kind of feel this is possible....yet despite waiting for this event for 18 months, it hasn’t happened yet. The world is a strange place right now.

A bit of me wants to move a chunk of my DC pot into cash, yet the voice at the back of my head tells me “if you’d done that 3/6/12 months ago, you’d have missed out on some very decent growth”.
Maybe I will listen to the other voice telling me “markets are cyclical, we are overdue a drop” & shift perhaps 10% to cash in there. Already have 30% around some bond/gilt funds, & they’ve doing over 12% for the past 12 months....the world feels daft at the moment....

I like the idea of a motor home, although I am not so convinced by the comment about nearly getting all the money back after a few years. If it is something you want to do, go for it! The cost of fuel and campsites is the bit I feel might make it more expensive than people think.

MarkCarnage

T

hose with modest savings - especially retirees - are worst hit by central banks support for borrowers. Little mention of this in the mainstream press. Prolonged QE is tempting savers into riskier and riskier investments and enticing borrowers to take on more-and-more debt.

The pack of cards will crash at some point,

All true, though I might also suggest that DB pension schemes have been hit harder due to:

1) Liability valuations based off gilt yields
2) Central bank buying about half the stock of gilts
3) DB liabilities exceeding the stock of hedge assets (long dated conventional and IL gilts) by a significant factor.

So the cost of hedging the liabilities keeps rising. Those schemes who waited for gilt yields to rise to their 'trigger' levels have been left behind. Game theory in action.

Other side of the coin is that transfer values have risen very significantly as a result. My view there is that this has changed the dynamic about the % of transfers that make sense. Where there is a combination of a couple of the following, especially so:

- Attractive CETV multiple
- Recipient not wholly or significantly dependent on the income
- Ill health
- Potential to manage income to minimise tax
- Capability to understand the risks involved

Don't disagree that the pack of cards is precariously poised, timing of this is impossible to predict. At present, I'm not thinking that the conventional 60/40 approach is likely to be a very effective windshield when the storm comes.