Please could someone check my figures ? DB tax free plus more

[Deleted User]

Ive just got a pension quote through from a very old DB pension I had forgotten about. I was only in the scheme for 3 years in the 80’s and thought Id have just a few pounds in there. However Ive been told that I can have £15,000 tax free lump sum this year at 55 so Im assuming the pot has around £60,000 in it. I have no taxable income as my income is tax free. I am therefore asking not to take any pension monthly income, but to give me an additional lump sum of £12,500 so within my personal allowance so no tax to pay.

I plan to ask for another £12,500 as soon as the new tax year starts in 2021 and to repeat every new tax year till the funds run out.

Have a read everything correctly ? Ive never really understood about pensions and this seems ideal. I’ll never have a taxable income either

xylophone

This is a deferred Defined Benefit Pension - you appear to think that you can access it as though it were a DC Scheme in drawdown.

It seems that you have been advised by the Scheme Administrators that it will be possible to access your pension from age 55.

Will this be with actuarial reduction?

Is what you have been offered a Pension Commencement Lump Sum and a monthly pension, with the possibility of commuting some of the pension to give an increased lump sum?

[Deleted User]

Im not sure I understand what you are saying. They gave me a quote that this year when I am 55, I can take £15,000 odd tax free and a yearly pension of £2,800 but I would prefer to just take the tax free lump sum plus £12,500 ?

cloud_dog

With a DB scheme there is no pot of money to make withdrawals from. There are scheme rules; in this instance there will be a formula to calculate the PCLS (£15k), and there is a promise to pay £xxxx per year until death (possibly with a spouce pension as part of the scheme).

With DB scheme you make the choice once, when you start claiming it. After that there is only the on going pension payment.

Dox

Densol wrote: »

Im not sure I understand what you are saying. They gave me a quote that this year when I am 55, I can take £15,000 odd tax free and a yearly pension of £2,800 but I would prefer to just take the tax free lump sum plus £12,500 ?

With a defined benefit scheme, you normally have one chance to take tax free cash, and that is at the point when you first start to take your benefits from the scheme. The rules of the scheme will dictate the maximum tax free cash you can take (subject to HMRC limits) and how this impacts on the pension you will receive from that scheme.

You can't access this scheme 'flexibly' (i.e. with you dictating how much you want and when). To do that, you would need to transfer out of the DB scheme to a defined contribution arrangement - and as your transfer value is likely to be £30,000+ you will need to receive advice (likely to cost upwards of £5K) before the DB scheme is allowed to pay out the transfer to another pension arrangement of your choice.

[Deleted User]

Right ok - Im starting to understand more now as from above Ive been googling.
It looks like I could cash the whole thing out and get the tax free sum, use my personal allowance and then get taxed on the rest at 20% as long as I got financial advice and they sign off a certificate ?

For me its very straightforward

I honestly thought this pension was going to pay me about £20 a year! Its a massive surprise and I certainly dont need it or would rely on it as I have a very high tax free income anyway. I only bothered to ask as they traced me through an old staff locater service to update their records and I figured lets see how much its worth ! It was non contributory as well lol

Dazed_and_confused

I don't think you do fully understand.

You do not have a pot of money.

You have a promise that the company will pay you an annual (taxable) pension of £2,800 plus a one off tax free lump sum.

If you choose to try and turn the promise into cash you will have to find a very specialist IFA who is prepared to do the work. They will want, for understable reasons, a very large, in comparison to the pension value, fee for doing this work.

If they don't recommend a transfer and you choose to ignore the advice you have paid for you will have a limited choice of where to transfer the pension to.

You may be able to do a second transfer to get it to the SIPP of your choice.

The original post from this thread is worth a read,

https://forums.moneysavingexpert.com/discussion/6097666/db-pension-transfer-ifa-costs

xylophone

Right ok - Im starting to understand more now as from above Ive been googling.
It looks like I could cash the whole thing out and get the tax free sum, use my personal allowance and then get taxed on the rest at 20% as long as I got financial advice and they sign off a certificate ?

Not quite as easy as you make it sound.

First of all, this is a pension with "safeguarded benefits" and given what you have been offered, the value of the benefits is greater than £30,000.

You would need to obtain the CETV.

You would then need to find a Pension Transfer Specialist to advise on the transfer - this would not be cheap.

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/pension-transfers-conversions/

Once you have the advice and can provide this in the manner prescribed by the ceding scheme and to the satisfaction of the receiving scheme, you would need to find a receiving scheme offering drawdown.

You would then be able to access the PCLS and draw down the balance as best suited your position.

You have not yet answered the questions in my first post.

Is there an actuarial reduction for drawing the benefits at age 55 or is 55 normal scheme pension age/an age at which the scheme does not impose an actuarial reduction?

Would you be permitted to increase the lump sum offered by commuting some of the monthly pension?

[Deleted User]

Thank you so much to all those helping
Im so sorry - I must really come over as really stupid. Pension just totally baffle me. I dont know about actuarial reduction.
I think 60 is normal and 55 permitted in the scheme. I left it in 1990
The quotation is specifically made for a start date in November when I am 55

xylophone

Im so sorry - I must really come over as really stupid.

No, indeed - asking about what isn't clear to you is very wise, not stupid.

With regard to the actuarial reduction, where a scheme pension age is higher than the age at which access to the benefits is permitted, it is common for there to be a reduction (usually at a percentage rate set in the scheme rules) in the benefits offered.

There are schemes which are more generous which allow access without AR from eg, age 55.

You might wish to check your position with the administrators of your scheme.

You might also wish to check on whether it is possible to take a higher monthly pension and no lump sum, a higher lump sum and smaller pension etc.

You don't have a copy of the scheme booklet?

[Deleted User]

Its a Prudential staff pension if that helps. I left there 30 years ago and honestly if they had not tried to trace me, I possibly would not have remembered about it as I thought it was peanuts, i was aged 21-24 only in the scheme.

It says early retirement - Nov 2020

They do say ask us about taking a lower lump sum and higher pension but its only £2300 a year if I take the £15k lump sum or £2800 without a lump sum. So tbh its negligible.

It doesnt mention about a higher lump sum but I could always ask them. I just thought Id ask on here first so I dont look totally uneducated ! Lol ..... lucky I did