Pension Lump Sum....What do people do with it?

GunJack

enthusiasticsaver said:

 Surely people look to avoid paying tax on their pension wherever possible?

So what, look to reduce your income so you're living on £12.5k plus some ISAs? Think I'd rather have the £30k pa. and some smaller ISAs...but then I've got 2xDB pensions with lump sums built-in and SP when I get there...

Surely, paying a bit of tax generally means you've got a higher income...better that than trying to get by on lower income and lower/no tax??

AnotherJoe

Mick-H said:

Premium bonds, you'll not lose money and chance of winning a million.
With average luck they reckon 1.4% interest.

With average luck its more like 1.2% because 1.4% includes the 1 in 40-odd billion chance a bond will win a million.

If you discount that, since average doesn't extend into the one in  a billion, then 1.2% is more accurate.

AnotherJoe

IAMIAM said:

Dox said:

The smart money is increasingly on not taking the maximum tax free cash unless there is an obvious use for it.

Its interesting this, a lot have said this to me too. But then 2/3 years later they regret it because they are paying huge tax on the income become the state pension kicks in on top of suddenly realising they would like to donate some money to family and/or then have an illness

They wont pay "huge tax" on the income because its tax free ! As in the name Tax Free Lump Sum.

However, if you can arrange things so you can take the taxable element just up to the personal allowance, and have no other income, maybe after quitting work and before SP and private pensions start, then that's a way of getting £2k a year for that period.

jimi_man

I invested (left) my lump sum (around £160K) in the pension scheme. I get a return of £6.5k or so after tax. Index linked for life with no cap, so I'm happy enough with my decision. The commutation rate was rubbish (21.5x) for my age (51), so I didn't bother. I also felt that I might have frittered (some of) it, which I wanted to avoid, so I reckoned it was best left in the pension. Safe, guaranteed return plus inflation.

83705628

Hope I'm not hijacking this thread but -
My mum can up her accrual rate in the teacher's pension from 1/57th to 1/45th and I've calculated it comes out at effectively a 4.3% "yield" or 23.3x commutation rate if she retires in 2 academic years (standard reduction, actuarial reduction, + the 1.6% ontop of CPI compounded for 2 years), effectively a 4.3% "yield" or 23.3x commutation rate.
My dad can take an optional lump sum from his USS pension at a 23.5x rate.
Would it be stupid to do both?

jimi_man

Whether a commutation rate is good value, is a function of age. 23.5x is good at 67, but not so good at 55. 

83705628

jimi_man said:

Whether a commutation rate is good value, is a function of age. 23.5x is good at 67, but not so good at 55. 

Dad's just turned 58, will have just turned 60 at the target retirement date in 2 year's time. We're leaning more towards the higher income option, I just wanted to get the forum's thoughts.

cfw1994

IAMIAM said:

Just curious, what do people actually do with their lump sum when retired at age 55+, a few of my friends have said they will use it to buy house in cash after 30 years of renting! Wondered what people tend to do with it.....saving it seems pointless 

Well....if someone is close to the LTA, then it can perhaps make sense to crystallise it before it 'trips over'. 
That way, the "age 75" test is against the *growth* of the drawdown pot (the 75% left) - which could perhaps all be taken down before then.
I have crystallised a chunk of mine - some to pay mortgage (fiscally not the smartest move, but mentally very sound!), some to fill ISAs for self+partner either side of April.   Some to stack into premium bonds ready for drawing on in the future.
At the end of the day, if you are re-investing some/most/all, the actual investments could remain the same: the pension is, of course, just a tax efficient wrapper, as are the ISAs. 
Others might buy small flat or house to rent out for income.   I find the thought of becoming a landlord these days a bit less appealing.  I do find it odd that you say people are buying a house after years of renting.

nigelbb

I know several people who have purchased a motorhome with their TFLS.

garmeg

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