Did You Blow Some (or All) of Your Lump Sum?

Stubod

Langtang said:

GunJack said:

Langtang said:

michaels said:

Perhaps if I had a DB pension with a compulsory lump sum I would see it differently.

Interesting. We've just been speaking about this the other night. My wife has an NHS pension. Does she have to take the lump sum? Can she not just leave the LS in, and get a higher pension?

It depends on what the rules are for the section(s) of the NHS pension she's in..

24 years in '95, and a year or so in the latest one..

If I remember correctly the "95" scheme has a compulsory lump some equal to 3 years pension. (I know as my OH had one, hence the reason for spending some of it).

I would have preferred to leave it in the scheme and have a higher monthly pension but in the 95 scheme that is not an option. The later schemes (2008 / 2015), have an option to take a lump some but at a reduced monthly pension..

Langtang

Stubod said:

Langtang said:

24 years in '95, and a year or so in the latest one..

If I remember correctly the "95" scheme has a compulsory lump some equal to 3 years pension. (I know as my OH had one, hence the reason for spending some of it).

I would have preferred to leave it in the scheme and have a higher monthly pension but in the 95 scheme that is not an option. The later schemes (2008 / 2015), have an option to take a lump some but at a reduced monthly pension..

Excellent, thanks very much for that. We're not particularly in need of the LS so would have preferred that it stayed put. Hey ho, I won't knock it back.

jamesd

vulcanrtb said:

It's madness how much we spend on cars (me included, I'm not pontificating) ... I think I've finally cracked my car obsession, it goes back in September and we bought a runaround from a local car sales place instead. I do about 10000 miles a year by bicycle anyway and now in retirement I have even less of a need for a flash car, though I can definitely afford one. We go to teh alps every July, we'll hire a car for that instead.

That's OK, I'll do a little pontificating instead of you. I've never owned a car or even had a license or lesson. I've normally lived in places with good public transport. that and occasional taxis cost money but car owners seem to spend far more.

jamesd

michaels said:

I see my DC pot as being a single entity, the fact that I can draw 25% of it tax free just means a lower average tax rate for the whole pot not some sort of freebie to be accessed and spent all at once.

Not sure if there are tax advantages in drawing as much as can be sheltered in isas each year at the start and crystallising everything that is in the pension - gain is that any growth in the isa is not subject to tax, downside is growth of everything left in the pension will be taxed - does it cancel out?

It doesn't cancel out, you make 6.25% increase after tax by putting the money into the pension if everything happens at basic rate. Hence move from ISA to pension when 55 approaches and the age barrier gets removed.

In drawdown it's potentially useful to draw more than will be spent from the pension in lifetime allowance and some other situations. Say if you want to position yourself for possibly higher future income tax or you want to diversify from your pension provider with the ISA. Or you might want to accumulate in the ISA a lump sum from taxable income that you can't get in one year from the pension without paying higher or top rate income tax.

Pension wins on inheritance tax normally.

Unless there's some definable reason to draw more taxable or tax free than you need from the pension there's no great benefit to drawing just to pay the excess into an ISA. Here it usually comes up in lifetime allowance planning.

jamesd

MallyGirl said:

Since it looks like there is now no practicable way to transfer out my small DB pension I will be taking the max lump sum from there that it will allow.

Small DB compared to other income is generally favourable for transfers if you have some other definable reason. Almost all income to come from the DB unfavourable, per FCA guidance. Neither definitive, just moving in the direction indicated.

You might also get a comparison of DB after max lump sum with DC and taking the same lump sum from the CETV. Commutation rates for lump sums tend to be low and this tends to provide a shove in the transfer direction, but maybe not enough of one.

hugheskevi

Stubod said:

Langtang said:

GunJack said:

Langtang said:

michaels said:

Perhaps if I had a DB pension with a compulsory lump sum I would see it differently.

Interesting. We've just been speaking about this the other night. My wife has an NHS pension. Does she have to take the lump sum? Can she not just leave the LS in, and get a higher pension?

It depends on what the rules are for the section(s) of the NHS pension she's in..

24 years in '95, and a year or so in the latest one..

If I remember correctly the "95" scheme has a compulsory lump some equal to 3 years pension. (I know as my OH had one, hence the reason for spending some of it).

I would have preferred to leave it in the scheme and have a higher monthly pension but in the 95 scheme that is not an option. The later schemes (2008 / 2015), have an option to take a lump some but at a reduced monthly pension..

Is inverse commutation not an option in the 95 scheme? This link suggests it is for the Scottish scheme.

cloud_dog

Travel will be our thing, not long-haul but spend time travelling the UK and Europe (for example). 

The how is the big question and a bit of a stumbling block for me TBH, e.g. spend a chunk of money on a campervan (hopefully lots of cheaper second hand ones will be available by the time we come to jump ship), or budget on more frequent holidays (7-14 days each), or standard holiday with lots of frequent long weekend breaks in between, or any combination thereof

Unfortunately my number crunching side looks at the cost of a reasonable second hand campervan and thinks "that is an awful lot of holidays/breaks" 

MallyGirl

jamesd said:

MallyGirl said:

Since it looks like there is now no practicable way to transfer out my small DB pension I will be taking the max lump sum from there that it will allow.

Small DB compared to other income is generally favourable for transfers if you have some other definable reason. Almost all income to come from the DB unfavourable, per FCA guidance. Neither definitive, just moving in the direction indicated.

You might also get a comparison of DB after max lump sum with DC and taking the same lump sum from the CETV. Commutation rates for lump sums tend to be low and this tends to provide a shove in the transfer direction, but maybe not enough of one.

If Barnett Waddingham ever sort out their website I will have a play. Last time I looked before BW got their mitts on it the CETV was £111k against a pension of £2004 pa. My projection has me with £700k DC pensions without the transfer and OH is going to be dancing around LTA. We don't need the guaranteed £2k a year to help us sleep better - its existence is just hassle. Don't get me wrong, I'll take it and use it to drawdown less DC but it is not going to make a lot of difference to my retirement

triplea35

No not a penny. Commuted 1/6 of a final salary pension and unlike most of my colleagues who had plans for major spends I tucked it away in a mixture of investment and saving products and got it inside pension and ISA wrappers. Now 11 years later if I was to draw on it even at the SWR of 3%, I could take nearly twice the amount the current 1/6 pays and also minimise any tax liability.

Secret2ndAccount

Langtang said:
... We're not particularly in need of the LS so would have preferred that it stayed put. Hey ho, I won't knock it back.

Stubod said:

I would have preferred to leave it in the scheme and have a higher monthly pension but in the 95 scheme that is not an option. 

If you don't need the money there are a couple of things you can do:
1. Pile as much as you can into your pensions (consider workplace vs SIPP) in the last year or two before you retire. After you retire, keep paying 2880 each per year into your SIPPs. Should be doing that anyway really.
2. Pay it into ISA's, max 20k each before April 5th, then 20k each after April 6th.
You should be able to get the money invested again pretty quickly, so that it doesn't stop growing. Then you can take it whenever you need it.