Tax free lump sum

ffacoffipawb

Audaxer wrote: »

That does work out at a commutation factor of 26.6 which is really good. Although the full pension is £4,099 per year more, after tax it is only £3,279 more. That is only 3% of the lump sum, so if the lump sum was taken and invested, I think you could easily draw 3% income, rising each year with inflation, to match or exceed what you would get from the full pension, without risking running out of money. Seems like a very good option in my view.

Mine is a factor of 24, or 30 allowing for the fact the pension is taxable.

So why am I still unable to decide which one to take?

I used to be indecisive. Now I'm not so sure.

rickenbacker330

The tax free lump sum is a big early retirement enabler for me. I’m 54 now and planning on taking my pension at 55. My pension is all DB. The last illustration requested used a figure of 26.3 but I expect this to be higher when I get the actual quote (a colleague of mine received 45x 18 months ago). My plan is to use the cash to pay off the mortgage (or offset it), pay off the remaining school fees and spread the balance over the years until SP kicks in. That still leaves a post-commute, rpi-linked DB pension of £52k pa so hopefully all should work out even with some expensive years ahead of me. Got FP14 so not expecting any LTA related tax bills.

ffacoffipawb

rickenbacker330 wrote: »

The tax free lump sum is a big early retirement enabler for me. I’m 54 now and planning on taking my pension at 55. My pension is all DB. The last illustration requested used a figure of 26.3 but I expect this to be higher when I get the actual quote (a colleague of mine received 45x 18 months ago). My plan is to use the cash to pay off the mortgage (or offset it), pay off the remaining school fees and spread the balance over the years until SP kicks in. That still leaves a post-commute, rpi-linked DB pension of £52k pa so hopefully all should work out even with some expensive years ahead of me. Got FP14 so not expecting any LTA related tax bills.

You have made me feel like a mere peasant.

Audaxer

rickenbacker330 wrote: »

That still leaves a post-commute, rpi-linked DB pension of £52k pa so hopefully all should work out even with some expensive years ahead of me. Got FP14 so not expecting any LTA related tax bills.

I think you'll manage to survive okay on that amount. It's said that £26k pa in total should be enough for a couple to live comfortably in retirement.

ffacoffipawb

ffacoffipawb wrote: »

Mine is a factor of 24, or 30 allowing for the fact the pension is taxable.

So why am I still unable to decide which one to take?

I used to be indecisive. Now I'm not so sure.

Went for PCLS option. Form posted. Decision made now.

jamesd

the_cat wrote: »

I have no personal pension

Really? None at all, not even one at work? If really none then making gross pension contributions equal to your pay is likely to be good idea, with the annual allowance. For a while you could pay in, get the tax relief then eventually withdraw the taxable part free of tax within your personal allowance.

OH should look to do the same while he can still make pension contributions above the 3600 a year gross that everyone can do until age 75.

the_cat wrote: »

We will most likely opt for the large lump sum as the main financial risk is if OH dies young before we have had a chance to start drawing state pensions as until then we will be using savings/SIPP drawdowns to top up the DB.

Why is this the main risk when term life insurance s very cheap and likely to cost much less than the lost DB income. Term provides cover and the lump sum payout just for the specified years so you might go with a policy that ends at his state pension age or yours.

For DC pensions you always take the maximum tax free lump sum because there's no advantage in not doing it. Maybe not all at once, though.

For DB it's usually best to take the minimum lump sum because commutation rates tend to be poor. The main reason not to do that is inadequate planning tat requires the lump sum to bridge the gap between retiring and state pension age.

Where there is a desire to take a DB lump sum and there are several DB plans the option of transferring one may be better. Transfer CETVs more than twice the commutation factor would't be surprising. So transferring one could deliver the pot needed while keeping a higher DB income overall.

jamesd

rickenbacker330 wrote: »

pay off the mortgage (or offset it)

Offset probably beats repaying, see the Pfau work on reverse mortgages.