Lump sum taxed? And advice…

yorkshirecath

We seem to keep getting different info so thought I’d ask here. 

My Husband turned 60 at the end of last yr but is still currently working but has paid full contributions into his pension and can now claim. He has a sizeable lump sum to take and a reduced annual pension. 

Is the lump sum tax free? And it’s just the yearly pension that is taxable? It’s a railway pension if that makes any difference. 

Also is there anywhere we can get some decent advice on where best to maybe invest a bit of it? 

Thanks 

Dazed_and_C0nfused

The PCLS will be tax free and the pension itself is taxable. 

The amount of tax payable on the pension will depend on what other taxable income he has each tax year.

Why is he opting for the larger lump sum and smaller pension?

When looking for an advisor make sure you are dealing with an Independent financial adviser.

Do you have friends/relatives you could get a recommendation from?

Marcon

yorkshirecath said:

We seem to keep getting different info so thought I’d ask here. 

My Husband turned 60 at the end of last yr but is still currently working but has paid full contributions into his pension and can now claim. He has a sizeable lump sum to take and a reduced annual pension. 

Is the lump sum tax free? And it’s just the yearly pension that is taxable? It’s a railway pension if that makes any difference. 

Also is there anywhere we can get some decent advice on where best to maybe invest a bit of it? 

Thanks 

Why not take a smaller lump sum and a larger pension? Unless the pair of you have an immediate use for the cash, that might be a better idea than taking maximum tax free cash and a permanently lower pension.

xylophone

https://forums.moneysavingexpert.com/discussion/6328296/defined-benefit-scheme/p1

Presumably your husband has been given options (see above) ?

What has he been offered?

yorkshirecath

Dazed_and_C0nfused said:

Why is he opting for the larger lump sum and smaller pension?

Why wouldn’t he? Unless he lived to be like 120 there’s no way he would be able to make more from the extra pension per year versus the lump sum amount 

yorkshirecath

xylophone said:

https://forums.moneysavingexpert.com/discussion/6328296/defined-benefit-scheme/p1

Presumably your husband has been given options (see above) ?

What has he been offered?

Yes he has 3 options. Smaller lump sum bigger pension per year but if you work out the extra he’d be getting per annum versus the lump sum he’d have to live to a VERY ripe old age to actually gain more that way 

yorkshirecath

Marcon said:

yorkshirecath said:

We seem to keep getting different info so thought I’d ask here. 

My Husband turned 60 at the end of last yr but is still currently working but has paid full contributions into his pension and can now claim. He has a sizeable lump sum to take and a reduced annual pension. 

Is the lump sum tax free? And it’s just the yearly pension that is taxable? It’s a railway pension if that makes any difference. 

Also is there anywhere we can get some decent advice on where best to maybe invest a bit of it? 

Thanks 

Why not take a smaller lump sum and a larger pension? Unless the pair of you have an immediate use for the cash, that might be a better idea than taking maximum tax free cash and a permanently lower pension.

If you work out the extra he would get per year he’d have to live for a very long time to gain more than the bigger lump sum. So surely it’s more beneficial to invest some of the lump sum and spend a little ?

squirrelpie

Since you haven't told us any numbers, just used phrases like 'a very long time', it's very difficult to form any opinion on whether it's a good idea or not.

Albermarle

yorkshirecath said:

Marcon said:

yorkshirecath said:

We seem to keep getting different info so thought I’d ask here. 

My Husband turned 60 at the end of last yr but is still currently working but has paid full contributions into his pension and can now claim. He has a sizeable lump sum to take and a reduced annual pension. 

Is the lump sum tax free? And it’s just the yearly pension that is taxable? It’s a railway pension if that makes any difference. 

Also is there anywhere we can get some decent advice on where best to maybe invest a bit of it? 

Thanks 

Why not take a smaller lump sum and a larger pension? Unless the pair of you have an immediate use for the cash, that might be a better idea than taking maximum tax free cash and a permanently lower pension.

If you work out the extra he would get per year he’d have to live for a very long time to gain more than the bigger lump sum. So surely it’s more beneficial to invest some of the lump sum and spend a little ?

It varies between pension schemes, but often it is a bit 50:50 whether to take the lump sum or not . Typically the lump sum = approx 20 years of the pension reduction . Seems odd that his seems so much longer .

Also is there anywhere we can get some decent advice on where best to maybe invest a bit of it? 

If you want to have proper independent financial advice then the 'bit of it ' would normally have to be at least £50K , as otherwise no IFA is likely to be interested . Otherwise you probably have three options 
1) Learn about investing yourself ( not as difficult as it might seem at a simple level )
2) Maybe your bank/building society would have a lower limit on what they will advise on ( they will charge of course)
3) Try a robo advisor like Nutmeg or Wealthify .

AlanP_2

Have you allowed for increases to the pension in payment each year by CPI / RPI or whatever the scheme provides.

I would be very surprised if it works out to be a 60 year breakeven point.

doodling

Hi,

Unless your husband is in an unusual section of the RPS then the commutation rate is 12:1 that means that on a simple calculation he needs to live 12 years after taking the pension for the larger pension to be the best choice for maximum money.

At 60 average life expectancy for a man is 84 so 24 years of pension payments.

On average, a man retiring at 60 in the RPS will get twice the amount of the lump sum if they convert it to pension.

There are two caveats:
1. I have ignored inflation, in general higher inflation will make taking the bigger pension a much better deal.
2. No-one is average. It is quite possible that your husband will live to 105 or die tomorrow, only you can judge what his real life expectancy actually is. Be careful though, most people underestimate.

Edited to add: You also need to consider the tax position. The lump sum is tax free but the pension won't be depending on your husband's earnings. If he pays basic rate tax then it will take a little longer than stated above to break even when taking the larger pension.