Taking increased Lump Sum from CS to reduce Tax liability and pay lump sum from existing mortgage

rosieusa_2

I'm struggling to decide whether I should take the maximum lump sum from my CS pension, even though it will reduce my pension by circa £4.5k per annum.

I am due to partially retire from the CS and continue working part time for the next 2/3 years.

I have a £67k lump sum, with a £23K pension; part time salary (CS) £27K; and rental income of £20K ; (circa £70.5K).

If I take the maximum lump sum £122k, my pension will reduce to £18.5K, but I still have my salary and rental income so £65.5K pa.  

I have a mortgage of £105K with 10 years to run (product is 5 years) and can make unrestricted payments, but not pay off in entirety.  I currently pay £1k per month.

If I take the maximum lump sum £122.5K and pay £70K off my mortgage this will reduce monthly mortgage payments to £350, I intend to use the residual £650 to pay into a CS DC pension through AVCs before I retire in 3 years time.  

When I finally retire, I will have as a minimum £20K rental income and my CS pension £18.5K + whatever the AVCs have returned on my pension, so will still be paying tax and when I get my state pension in 7 years time I'm probably back up to 40%  

Am I missing something, or does taking the maximum lump sum, reducing my CS pension and re-investing with AVCs to my pension, paying off a significant amount of my mortgage make sense?  I don't have a spouse, but children who are grown up.

ewaste

Mortgages are still relatively cheap especially if you've fixed for the next 5 years. With inflation and uncertainty I'd be keeping the income especially as the commutation rate on public Sector schemes is usually poor.

What exit strategy do you have for your rental portfolio? personally I don't regard it as 'safe income' especially as I age. I'd much rather have the DB income and if necessary liquidate rental property.

rosieusa_2

Hi, but I'm not sure I follow.

I understand that commutation rates are generally poor, but I'll be paying 40% tax and I think I'd need to live a certain number of years for it to be less beneficial. 

My tax bracket is always likely to be higher rate and if I die, the pensions (other than the beneficiary in my DC pensions that I will be taking out with the additional money saved from my reduced mortgage payments) will die with me, whereas rentals will still be there.  I will save nearly £9K in interest on my mortgage too?