Pension

working9

Hi, I’m thinking of taking my pension and retiring. Any tips as to where to put my lump sum to generate interest. Thank you in advance.

mark55man

Hello @working9   I'm sorry this didn't get a response yesterday.   I try and check every night, but this is a fast moving board and its easy for things to get lost.

A couple of things - the answer will depend on how much you have and when you might need it, with a subtext of only taking the minimum amount of lump sum that you can foresee needing  (as often the commutation rate to turn income into cash is not a great long term deal, and having reached pension taking age you can still expect on average another 20-30 years

If you are set on savings products then you just need to be careful not to exceed the compensation limit for savings accounts which is about 85K per savings organisation,

However with inflation high any amount of cash savings will lose purchasing power very quickly so normally (unless you need the lot relatively short time frame ie within the next 5 years the general advice would be find a low cost passive fund (probably multi-asset - ie not just stocks (aka equity).  You may be worried markets have taken a slump this year, others would argue that's the ideal time.  I would suggest asking the question on the savings and investments board who are also helpful   

Hope that helps - 

Marcon

working9 said:

Hi, I’m thinking of taking my pension and retiring. Any tips as to where to put my lump sum to generate interest. Thank you in advance.

Is the lump sum automatic or can you choose how much (if any) tax free cash to take?

If the latter, think hard before you take any tax free cash if you are only going to invest it to generate 'interest'. You may be better taking everything as pension, assuming this is a defined benefit (aka final salary) scheme.

dunstonh

Hi, I’m thinking of taking my pension and retiring. Any tips as to where to put my lump sum to generate interest. Thank you in advance.

is it best to take the lump sum?
If its a DB scheme it may not be.  If its a DC scheme then you don't need to take it up front but can take it on drip with the income.   Which is often a more tax efficient way of doing things.

sheslookinhot

Marcon said:

working9 said:

Hi, I’m thinking of taking my pension and retiring. Any tips as to where to put my lump sum to generate interest. Thank you in advance.

Is the lump sum automatic or can you choose how much (if any) tax free cash to take?

If the latter, think hard before you take any tax free cash if you are only going to invest it to generate 'interest'. You may be better taking everything as pension, assuming this is a defined benefit (aka final salary) scheme.

Would this also be true if it meant that you would be paying higher rate tax either on the DB pension or combined DB pension and state pension?

msallen

sheslookinhot said:

Marcon said:

working9 said:

Hi, I’m thinking of taking my pension and retiring. Any tips as to where to put my lump sum to generate interest. Thank you in advance.

Is the lump sum automatic or can you choose how much (if any) tax free cash to take?

If the latter, think hard before you take any tax free cash if you are only going to invest it to generate 'interest'. You may be better taking everything as pension, assuming this is a defined benefit (aka final salary) scheme.

Would this also be true if it meant that you would be paying higher rate tax either on the DB pension or combined DB pension and state pension?

If its tax free, its tax free, whether you take it up front or with the taxable element over time.

Parking_Trouble

sheslookinhot said:

Marcon said:

working9 said:

Hi, I’m thinking of taking my pension and retiring. Any tips as to where to put my lump sum to generate interest. Thank you in advance.

Is the lump sum automatic or can you choose how much (if any) tax free cash to take?

If the latter, think hard before you take any tax free cash if you are only going to invest it to generate 'interest'. You may be better taking everything as pension, assuming this is a defined benefit (aka final salary) scheme.

Would this also be true if it meant that you would be paying higher rate tax either on the DB pension or combined DB pension and state pension?

I think it can make a difference and it's a question I was going to pose on here. Not sure if this might apply to the OP or if they are getting a fixed lump sum as is the case with some schemes.

I have an additional small DB pension I can take next year at 65. 
When State Pension kicks in at 66 (in addition to main DB pension + the 2nd DB) it could take me into 40% tax.

I can take £3,216 and pay 20% tax on it, maybe some at higher rate in 2024 or, take up to £14,639 TFLS with pension reduced to £2,196.  

I'm leaning towards taking the maximum lump sum.

sheslookinhot

msallen said:

sheslookinhot said:

Marcon said:

working9 said:

Hi, I’m thinking of taking my pension and retiring. Any tips as to where to put my lump sum to generate interest. Thank you in advance.

Is the lump sum automatic or can you choose how much (if any) tax free cash to take?

If the latter, think hard before you take any tax free cash if you are only going to invest it to generate 'interest'. You may be better taking everything as pension, assuming this is a defined benefit (aka final salary) scheme.

Would this also be true if it meant that you would be paying higher rate tax either on the DB pension or combined DB pension and state pension?

If its tax free, its tax free, whether you take it up front or with the taxable element over time.

If you take an increased pension rather than the lump sum, you could get taxed at 40% on it. Hardly tax free.