Is it mandatory to take the 25% lump sum from the pension pot when you retire?

Albermarle

Dandytf said:

pjread said:

Not mandatory; some might roll it in to regular drawdown & get 25% of each withdrawal tax free rather than a 'glut' up front (there's an acronym for this, something like UFPLS?) 

Personally I'd plan to pull out the tax free cash as fast as I could feed ISA's or other shelters if they exist when I get there, and possibly cover any debts if they exist (e.g, many might clear an outstanding mortgage). 

Oh, and of course to buy the Lambo & world cruise...

Taking 25% from Pension to add to an ISA.
Does a new or existing Isa offer more of a return over 5-10 yrears.
Sounds interesting, I 'thought' Pension was the way to go for higher returns,
t.i.a..

Like many people you are getting confused between pension/ISA and the investments within them .
The same investment in either a pension or an ISA will perform exactly the same .

Albermarle

pjread said:

Albermarle said:

pjread said:

Marcon said:

pjread said:

Personally I'd plan to pull out the tax free cash as fast as I could feed ISA's or other shelters if they exist when I get there, 

Why? The money is already in a tax sheltered environment, and probably a better one than an ISA or other shelter. What's wrong with leaving it there and drawing it down as you need it.

Lifetime allowance, assuming it's still around the same level in real terms in ~20 years (which is crystal ball territory, but you can only plan on what you know). 

Problem is if the tax free sum taken  is quite large , then you have problems sheltering it from tax and maybe end up paying CGT or dividend tax . For sure you will create an admin headache . 
Normally the advice is not to let the tax tail wag the investment dog. Going over the LTA by hundred grand or two is not the end of the world. Nice problem to have in fact and the Givt sure need your money !

Yeah hence the conditional bit which will depend on position and rules at the time; but with everything else equal, I'd pull out at least (whatever I can shelter in an ISA or similar) + (anything I need short term - e.g. to clear residual mortgage if any, help kids out) + (maybe something to push in to VCTs or other vehicles to offset some income tax, but only if I don't need access to and could afford to lose).  Maybe that means dripping out the lump sum over a few years.

I doubt I'm alone in thinking I pay enough tax as it is   But whether my plan's good or stupid, I guess the point for the OP is you should have a plan for it.  And I'd suggest reflecting before deciding that plan is a new car/house/whatever

Pulling out £20K tax free cash a year to go into an ISA + spending money makes perfect sense if you are close to LTA.
I do not want to pay more tax either  but sometimes it seems that some posters are too frightened of the LTA .
If you get HRT relief on the way in and/or employer contributions , then you do not actually normally lose  by having to pay LTA tax and it is only on the bit over LTA , not all of it of course.

Silvertabby

Albermarle said:

Rocksolid said:

I see it always accounted in website to plan your retirement, but I don't understand, why someone wants to do it? Just is because there the tax relief? (so all cash free of taxes)

Or because the people didn't plan well their lifes (or something bad happened), and they use this cash for paying the mortgage and other things?

I do not know the statistics but despite any sensible advice most people just can not wait to get their hands on it - new car - holiday etc 

Something like 90% of LGPS pensioners take the maximum 25% tax free cash, despite the poor commutation rate of 1:12.

I used to get the feeling that in the case of the lower paid manual workers, in particular, this money was seen as the equivalent of a lottery win.

Albermarle

Silvertabby said:

Albermarle said:

Rocksolid said:

I see it always accounted in website to plan your retirement, but I don't understand, why someone wants to do it? Just is because there the tax relief? (so all cash free of taxes)

Or because the people didn't plan well their lifes (or something bad happened), and they use this cash for paying the mortgage and other things?

I do not know the statistics but despite any sensible advice most people just can not wait to get their hands on it - new car - holiday etc 

Something like 90% of LGPS pensioners take the maximum 25% tax free cash, despite the poor commutation rate of 1:12.

I used to get the feeling that in the case of the lower paid manual workers, in particular, this money was seen as the equivalent of a lottery win.

Which is why if there are pension reforms , getting rid of the 25% tax free payout  will not be one of them . It would be wildly unpopular. 

zagfles

Albermarle said:

Silvertabby said:

Albermarle said:

Rocksolid said:

I see it always accounted in website to plan your retirement, but I don't understand, why someone wants to do it? Just is because there the tax relief? (so all cash free of taxes)

Or because the people didn't plan well their lifes (or something bad happened), and they use this cash for paying the mortgage and other things?

I do not know the statistics but despite any sensible advice most people just can not wait to get their hands on it - new car - holiday etc 

Something like 90% of LGPS pensioners take the maximum 25% tax free cash, despite the poor commutation rate of 1:12.

I used to get the feeling that in the case of the lower paid manual workers, in particular, this money was seen as the equivalent of a lottery win.

Which is why if there are pension reforms , getting rid of the 25% tax free payout  will not be one of them . It would be wildly unpopular. 

It would also cost schemes like the LGPS, and so the taxpayer ultimately, if people weren't given the opportunity to voluntarily rip themselves off by taking a 1:12 commutation rate.

Malthusian

Silvertabby said:

I used to get the feeling that in the case of the lower paid manual workers, in particular, this money was seen as the equivalent of a lottery win.

If you're a lower paid manual worker a 1 : 12 commutation rate isn't as much of a rip off as if you're a financially savvy person who spent their career flying a desk.

garmeg

Malthusian said:

Silvertabby said:

I used to get the feeling that in the case of the lower paid manual workers, in particular, this money was seen as the equivalent of a lottery win.

If you're a lower paid manual worker a 1 : 12 commutation rate isn't as much of a rip off as if you're a financially savvy person who spent their career flying a desk.

Presumably you are alluding to the lower life expectancy for the former?

Malthusian

Bingo. ‎‎‎‎‎

garmeg

Malthusian said:

Bingo. ‎‎‎‎‎

They may be more likely to play that as well. 

Albermarle

garmeg said:

Malthusian said:

Bingo. ‎‎‎‎‎

They may be more likely to play that as well. 

With the tax free cash maybe ?