Pension lump sum

Lynnw1

I am looking to retire at 63 with a civil service pension and Pension Protection pension, both will be taken early so I realise that my monthly income will be reduced. I am unsure however, if I should take both max tax free lump sums, just one, or none. The reason I am unsure is when I start to receive my state pension my income based on todays figures will be c£1600 per month therefore taxable. If I take the lump sums this will be c£47,000, which will reduce my taxable income down to around £1400 per month. I would appreciate any advice or guidance please.

Marcon

Lynnw1 said:

I am looking to retire at 63 with a civil service pension and Pension Protection pension, both will be taken early so I realise that my monthly income will be reduced. I am unsure however, if I should take both max tax free lump sums, just one, or none. The reason I am unsure is when I start to receive my state pension my income based on todays figures will be c£1600 per month therefore taxable. If I take the lump sums this will be c£47,000, which will reduce my taxable income down to around £1400 per month. I would appreciate any advice or guidance please.

An extra £200 a month which is subject to tax is a tax bill of £40 at current 20% tax rates. 

As you say, taking your benefits early will mean your monthly income is reduced - and you could be in retirement for 30+ years. If you take the lump sum, what will you do with the money to get a return at least as good as the inflation-linked increases provided by your civil service pension?  If you plan to put it in an ISA, that would mean a maximum of £20,000 this tax year, next tax year and then a final £7,000 the tax year after. Withdrawals may be tax free, but there's no guarantee on how the underlying ISA investments will perform.

Perhaps the question isn't so much about tax, but more about how much certainty of future income matters to you?

hyperhypo

Normally you don't have to take 100% of PCLS...lump sum.  Adjusting the % just to match imminent perceived cash expenses... replacement car... boiler..roof..and so on is another way to approach it. Justify why you might need any cash against future indexed income .. consider a low a PCLS % as seems doable. Which is roughly what I did...I took 50%... although with benefits of hindsight taking 25% might have been sufficient...