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

pensionpawn

Pile_o_stone said:

I'll be taking the lumpsum and I'll invest the maximum I can into my wife's pension and the rest will go into an ISA. This will allow us to make sure we max out my wife's pension earnings to the full £12,500 tax free allowance, max out my tax free allowance and then the rest of our income will be from the tax free ISA. Any monies invested in my wife's pension will get a 20% tax rebate uplift and the monies in the ISA will be invested in the same funds as my pension so will make the same gains - however, unlike my pension, the income taken from the ISA is not subject to tax.

After being a high-rate taxpayer most of my working life, my aim in retirement is to pay as little tax in retirement as is legally possible, yet still maintain my current lifestyle.

I too plan to boost my wife's pension that way. It's a crime to waste any personal allowance. If you are also in a position to transfer 10% of you personal allowance to her, and then also drawdown via UFPLS, it magnifies her tax free pension income to £18333! You still have 90% of your allowance generating a combined tax free income of £29583. That's not exactly roughing it!

Silvertabby

jamjar92 said:

IAMIAM said:

This is the problem with DB schemes. Most if not ALL civil service pensions will not allow transfer outs with CETV which is a concern if you have ill health or short life expectancy. I would hate to be in a position where you only draw 3/4 years and suddenly pass away and all the DB scheme 'money' is lost. Who knows, in 25 years, they may allow CETV transfer out from DB schemes again....

You can with a LGPS scheme, but you need an IFA. My planned escape is in 8 years, I will be working within boundaries of LGPS scheme. I will be taking schemes lump sum, AVC's and take what I think at the time is a reasonable yearly pension for a couple and convert the remainder. The other half will be taking early retirement in about 4 years.

Forget the Government Gilt linked CETVs of 40 x annual pension given up, which have been used to justify transfers out from private DB schemes.

Transfer factors in respect of the LGPS are set by GAD and have always been notoriously low.  Lots of variables, but a CETV of less than 20 x the annual pension given up wouldn't raise my eyebrows. 

Thrugelmir

IAMIAM said:

jamjar92 said:

Reading this thread it depends on the type of pension you are recieving. Mine's a DB pension. With the lump sum I will paydown the mortgage with the amount in my AVC currently with its projected value at retirement, and could have some left over depending how much I overpay. All other debts should be cleared by then.

What pension amount are people in pension DB scheme planning on taking, at today value?

People I know who already retired have always taken the max lump, and invested some of the money so they if I die, there is a pot of money left for family as the pension just stops (apart from spouse pension of course). From that pot I can draw down as required if I do not die and enjoy life to the max without worries. (thats the plan anyway).

After 7 years I will get the state pension boost. As others have said I plan to put as much into the AVC (more in the last year) as I can between now and retirement.

This is the problem with DB schemes. Most if not ALL civil service pensions will not allow transfer outs with CETV which is a concern if you have ill health or short life expectancy. I would hate to be in a position where you only draw 3/4 years and suddenly pass away and all the DB scheme 'money' is lost. Who knows, in 25 years, they may allow CETV transfer out from DB schemes again....

There is no pot with Civil Service schemes. 

DHT

pensionpawn said:

Clear high interest debts first, although think carefully about clearing an ultra low interest mortgage. Put some aside for riding out (another?) market downturn. Then, if your other half is playing catch up with their pension, live off any remaining amount of TFLS so that your other half can dump as close to 100% of their salary (<£40k) into their pension. Not only are they getting a 20% top up on their contributions, you are also working towards making the most of both of your personal allowances (£25k tax free) in drawdown. If you still have some TFLS remaining, then, if you are still working you can increase your own pension contributions by 30% before potentially triggering recycling rules. Finally, use it to keep your pension topped up by £3600 pa (£2880 net) until age 75, after you eventually give up work.

Hello,

I am hoping to retire within 5 years and the contributors in this forum are such legends!

I have one question - if you are still working you can increase your own pension contributions by 30% before potentially triggering recycling rules

am I correct to understand that:

I can take lump of sum (25%) at 55 (from DC pension 1) - Not going to touch the rest (75%) until I retire.

I can carry on working and still pay in to the company DC pension 2

I can use the lump of sum to increase the pension contribution from the current 20% to 50%(max) ?

The followings are my past tax years contribution from the annual salary.

18/19 - 15%

19/20 - 15%

20/21 - 20%

I just do not wish to triggering recycling rules.

Thank you!

AlanP_2

jamjar92 said:

IAMIAM said:

This is the problem with DB schemes. Most if not ALL civil service pensions will not allow transfer outs with CETV which is a concern if you have ill health or short life expectancy. I would hate to be in a position where you only draw 3/4 years and suddenly pass away and all the DB scheme 'money' is lost. Who knows, in 25 years, they may allow CETV transfer out from DB schemes again....

You can with a LGPS scheme, but you need an IFA. My planned escape is in 8 years, I will be working within boundaries of LGPS scheme. I will be taking schemes lump sum, AVC's and take what I think at the time is a reasonable yearly pension for a couple and convert the remainder. The other half will be taking early retirement in about 4 years.

By convert do you mean take the CETV? Can you get a CETV for part of the LGPS pension and transfer that to a SIPP?

Must admit that would be the last thing I would consider doing with my LGPS pension. I don't have any automatic lump sum so for me it is AVCs as TFLS and a good annual pension going forwards, no requirement or financial logic to commute any annual pension at the low 1:12 rate for more lump sum.

That is based on being in reasonable health and no known short life expectancy and having an old, private sector DB scheme that I do plan on taking the CETV for.

MalMonroe

I spent mine and had a lovely time with it, enjoyed myself no end. Saved a bit too so I could spoil myself regularly. Because - you just do not know when your time is up. You can have the very best health in the world and drop down dead suddenly one day, which is what one of my close friends did, at the age of 60. He was a non-smoker, non-drinker, long-time yoga trainer, a very fit and healthy man and the last person anyone would expect to die at that age. 

You can invest it, save it, mess about with it and gather as many portfolios as you like but you can't take it with you. Your descendants can profit from you but why on earth save a bunch of money you worked hard for and then don't use it? 

Entirely my own thoughts and opinions of course and I hope to be here for a while yet as I'm planning to buy a property in the very near future and I just turned 70. New adventures . . . yay! I still don't know what I want to be! I feel young. But I know that time's limited and I don't want to be squirrelling away and living like a poor person in the meantime. Some of my friends have thousands stored away, and insist on boring me with stories about how sensible they are. But they will never benefit from it. Some have lived so frugally all their adult lives they just can't stop. They're not poor though.

Enjoy yourself while you're here, is what I think. This is our one and only wild and precious life. (Mary Oliver, The Summer Day)

pensionpawn

DHT said:

pensionpawn said:

Clear high interest debts first, although think carefully about clearing an ultra low interest mortgage. Put some aside for riding out (another?) market downturn. Then, if your other half is playing catch up with their pension, live off any remaining amount of TFLS so that your other half can dump as close to 100% of their salary (<£40k) into their pension. Not only are they getting a 20% top up on their contributions, you are also working towards making the most of both of your personal allowances (£25k tax free) in drawdown. If you still have some TFLS remaining, then, if you are still working you can increase your own pension contributions by 30% before potentially triggering recycling rules. Finally, use it to keep your pension topped up by £3600 pa (£2880 net) until age 75, after you eventually give up work.

Hello,

I am hoping to retire within 5 years and the contributors in this forum are such legends!

I have one question - if you are still working you can increase your own pension contributions by 30% before potentially triggering recycling rules

am I correct to understand that:

I can take lump of sum (25%) at 55 (from DC pension 1) - Not going to touch the rest (75%) until I retire.

I can carry on working and still pay in to the company DC pension 2

I can use the lump of sum to increase the pension contribution from the current 20% to 50%(max) ?

The followings are my past tax years contribution from the annual salary.

18/19 - 15%

19/20 - 15%

20/21 - 20%

I just do not wish to triggering recycling rules.

Thank you!

You can take a TFLS of less than £7500 and no one gives a hoot. You can chuck the whole lot back into your pension, with a 20% mark up, and all is well and good. Take more than that and you have to tread carefully. Two linked conditions are the increase in contributions (compared to a 5 year average of contributions prior (3) and post (2) TFLS) must be less than 30% IF the total increase in contributions over that period is greater than 30% of the TFLS. The way I understand it (and I am not a professional financial adviser) is that if you take a £100k TFLS your care free increase in contributions to your pension is actually limited to £30k over the recycling review period, which is an extra £6k pa on average. Below that, no one is interested. Go above that £6k pa and this will be tested to see if it is more than 30% of what you normally contribute. Hence having taken a £100k TFLS to throw all that £6k extra pa into your pension and not trigger recycling you must be already be throwing at least £20k (to keep the £6k under 30%) into your pension pa on average. Therefore if you normally only drop £6k pa into your pension, increasing that beyond £7800 would trigger recycling penalties even though the 30% of your TFLS rule creates a ceiling of £30k pa. I believe outside of the 5 year test period you can go mad with your contributions (if still working) and no one will care. You are also, of course, still restricted by a maximum contribution pa of your salary, or £40k, whichever is the lower.
Someone please correct me if I have misinterpreted the rules.
Alternatively, if you have a partner who is working towards beefing up their pension pot, you could live off your TFLS and your partner salary sacrifices as much as possible and dumps the rest of their salary into a SIPP. Beside normal contribution limits, there are no recycling issues as you are spending your TFLS. Life is much easier, and this is my planned route. However you obviously have to be fairly confident that your partner isn't going to do a runner!
 

pensionpawn

MalMonroe said:

I spent mine and had a lovely time with it, enjoyed myself no end. Saved a bit too so I could spoil myself regularly. Because - you just do not know when your time is up. You can have the very best health in the world and drop down dead suddenly one day, which is what one of my close friends did, at the age of 60. He was a non-smoker, non-drinker, long-time yoga trainer, a very fit and healthy man and the last person anyone would expect to die at that age. 

You can invest it, save it, mess about with it and gather as many portfolios as you like but you can't take it with you. Your descendants can profit from you but why on earth save a bunch of money you worked hard for and then don't use it? 

Entirely my own thoughts and opinions of course and I hope to be here for a while yet as I'm planning to buy a property in the very near future and I just turned 70. New adventures . . . yay! I still don't know what I want to be! I feel young. But I know that time's limited and I don't want to be squirrelling away and living like a poor person in the meantime. Some of my friends have thousands stored away, and insist on boring me with stories about how sensible they are. But they will never benefit from it. Some have lived so frugally all their adult lives they just can't stop. They're not poor though.

Enjoy yourself while you're here, is what I think. This is our one and only wild and precious life. (Mary Oliver, The Summer Day)

I couldn't agree more. It would be a tragedy of epic proportions to save sensibly through your working life not to see the benefit of your retirement planning. I want to pull the rip cord as soon as I can, which will be in just under three years when my youngest (hopefully) graduates. I pull the leg of my dear friend at work (he's Scottish) about obsessively saving (gold bars buried in the garden etc), his beat up car, old tv's etc. He's well off and generous to his friends (always first to the bar in the pub etc) however very frugal with himself, and to an extent his family. I tease him that a £1 coin only has value when it moves location (spawns nerdish jokes about electrons coughing up photons etc) and that sitting on a huge pile of cash, second home (he does), rental income is a shame if you don't do something with it and enjoy life. He does agree that he finds it difficult to spend, even when he can easily afford it. I intend to check out with only the value of our home to divide amongst the adult children. Enjoy the money on yourself and your family whilst you're still active and can wipe your own !!!!!!. Being 80+ and having £0.5M+ in funds seems a waste to me.

IAMIAM

MalMonroe said:

I spent mine and had a lovely time with it, enjoyed myself no end. Saved a bit too so I could spoil myself regularly. Because - you just do not know when your time is up. You can have the very best health in the world and drop down dead suddenly one day, which is what one of my close friends did, at the age of 60. He was a non-smoker, non-drinker, long-time yoga trainer, a very fit and healthy man and the last person anyone would expect to die at that age. 

You can invest it, save it, mess about with it and gather as many portfolios as you like but you can't take it with you. Your descendants can profit from you but why on earth save a bunch of money you worked hard for and then don't use it? 

Entirely my own thoughts and opinions of course and I hope to be here for a while yet as I'm planning to buy a property in the very near future and I just turned 70. New adventures . . . yay! I still don't know what I want to be! I feel young. But I know that time's limited and I don't want to be squirrelling away and living like a poor person in the meantime. Some of my friends have thousands stored away, and insist on boring me with stories about how sensible they are. But they will never benefit from it. Some have lived so frugally all their adult lives they just can't stop. They're not poor though.

Enjoy yourself while you're here, is what I think. This is our one and only wild and precious life. (Mary Oliver, The Summer Day)

I totally agree with this 100%. It really does depend on situation/off spring/personal circumstances. BUT I wholeheartedly agree that there is only one life. I want to stop work, pay off mortgage and enjoy life in my 'older' years. I think the reason people squirrel away and all that is due to ageing resulting in less risk taking etc and thinking the money will come in handy for an emergency when at 70+. I intend to take my full lump sump, pay off any mortgage still left and use it and enjoy it. The worst case scenario being that I cannot live off my DB pension (highly unlikely). Worst case scenario, I would sell up and rent. I doubt I will care at age 70/80/90. Having said that EVERY person I meet who is what I class as elderly retired say, use the money now, you cant take it with you! 

jamjar92

By convert do you mean take the CETV? Can you get a CETV for part of the LGPS pension and transfer that to a SIPP?

Must admit that would be the last thing I would consider doing with my LGPS pension. I don't have any automatic lump sum so for me it is AVCs as TFLS and a good annual pension going forwards, no requirement or financial logic to commute any annual pension at the low 1:12 rate for more lump sum.

That is based on being in reasonable health and no known short life expectancy and having an old, private sector DB scheme that I do plan on taking the CETV for.

 AlanP_2  will not be transferring out of the scheme, no way. Just building the AVC pot up as much as possible so it as near to 25% without converting too much pension to additional lump sum. This is what my boss did (took max 25%), will see how he went on, if it was a good idea or not. He retired a few years ago so his investment pot will have gone south due to Covid. Strategys change over time, but you have one to start with, this is mine for now.