do i need to take my lump sum in one go

markbsac

hi again,

when i take my pension lump sum do i have to take it all at once...or can i take it in smaller chunks whenever i want it...im in a final salary db scheme...if i take it all at once im only going to have to put it into other savings accounts ect...and ive been told its best to leave it in the pension fund

Albermarle

As it is a DB scheme you will not have a choice 'to take the lump sum or leave it in the pension'

It varies from scheme to scheme but most likely you will be offered two basic alternatives :
No lump sum and an annual ( taxable ) guaranteed pension
A tax free lump sum with a smaller ( taxable ) annual guaranteed pension.

You have to decide which is the best option for you depending on the figures and your own circumstances /health/ financial situation.

I think if you go for the lump sum option you will probably have to take it all in one go.

Linton

With DB schemes you must usually take the whole lump sum when you start taking the rest of the pension. There maybe the option of taking a lower lump sum and more pension if there is no need of the extra cash. You would need to discuss the options with your scheme administrator.


If you do end up with a large amount of cash, more than your short term needs, you could start investing for the longer term with share funds.

SonOf

if i take it all at once im only going to have to put it into other savings accounts ect...and ive been told its best to leave it in the pension fund

1 - as mentioned above, you can only take it upfront if its a DB scheme
2 - if you dont need it then savings accounts are not the only option. Indeed, you can put some of it back into a pension and may not be limited to just £3600 a year in the year you retire. Then you have S&S ISAs etc.
3 - Being told its best to leave it in the pension can be correct. With some DB schemes, the reduction in the income for the amount of lump sum being taken can favour taking a higher lump sum and lower-income or it can favour taking a higher income and lower/no lump sum. With money purchase pensions, it is usually best to not take the 25% up front unless you have a justifiable reason for doing so. Phasing it is often the best financial option. However, you cannot do that with DB pensions.

markbsac

thanks guys...my issue is if i take it all in one go its 80k tax free 25% but then what do i do with it as interest rates are so poor.i will use my isa allowance to the max thats all i can think of as im not used to dealing in shares and the stock market

Albermarle

my issue is if i take it all in one go its 80k tax free 25% but then what do i do with it as interest rates are so poor.

Yes this is an issue and you have basically four choices :
1) Do not take it at all and instead have a higher ongoing annual pension ( Normally this should be an option )
2) Put it in a savings account for say 5 years , for which you will get around 2% interest. or an easy access account at around 1.30% ( or a mix )
3) Spend it
4) If you do not need the money ( or most of it ) for > 10 years , consider investing it in stocks & shares; investment funds etc to hopefully get a better return than a savings account. There is some risk involved but if choose the right fund and leave it for a minimum of 10 years you would be very unlucky to lose.

markbsac

its a difficult one....yes i do plan to spend some of it,i dont want it tied up for 10 years...but then i also have other savings in excess of 100k ...i class myself in a very good position, ive always been a saver and a big redundancy payout also helped my savings...always being a saver will be difficult turning into a spender....ill have a new car a couple of nice cruises and holidays with the wife so yes i am going to try and enjoy it....but im thrifty so wont spend it all.

ffacoffipawb

markbsac wrote: »

its a difficult one....yes i do plan to spend some of it,i dont want it tied up for 10 years...but then i also have other savings in excess of 100k ...i class myself in a very good position, ive always been a saver and a big redundancy payout also helped my savings...always being a saver will be difficult turning into a spender....ill have a new car a couple of nice cruises and holidays with the wife so yes i am going to try and enjoy it....but im thrifty so wont spend it all.

Is the pension enough to live on or will you need some of the cash to supplement it?

markbsac

my monthly pension will be just fine to cover my bills and give me some nice spending money :-) im actually 57 in march and finishing work and using some of my savings to live on until i reach 60...i lose 4% for each year i take it below 60 i also receive a small navy pension at 60

Albermarle

but then i also have other savings in excess of 100k

Just remember that even cash savings you do not spend get slowly eroded by inflation , especially over many years , and you could well live to 85/90 +

You should at least consider investing some of the money on a say 10 to 20 year timescale, to improve the return .

markbsac

but in 7 years from 60 when i get my state pension as does the wife we will have more than enough on our monthly pensions to live comfortably on