Lump Sum Question

zooks

Marcon said:

zooks said:

Marcon said:zooks said:

I've read a lot on the forum about not taking a DB lump sum on retirement but a bit confused as to why?

My own circumstances are that I would like to take early retirement next year when i'm 56.

I will take a 24% hit due reduction factor applied to my DB pension as my normal retirement age would have been 63.

My pot value is aproximately 900k so I will hit the LTA before 63 anyway.

I have the option of taking a yearly pension of aprox 30k plus 3x lump sum, comutate some of my yearly pension to maximise the Lump or take no lump sum to maximise my yearly pension. Comutation factor of my companies pension scheme is 28:1.

I have enough savings to get by and no mortgage so I don't necessarily need the lump sum but i'd assumed that it was best to take as much tax free money as possible away from the taxmans grasp.

Have I got this wrong?

DB pensions don't have 'pots', so I assume you are talking about a Cash Equivalent Transfer Value you've received fairly recently? If so, that's not relevant to the LTA. The value used for a DB scheme is 20 times the pension plus any tax free lump sum available within the LTA, so you have masses of headroom before you get anywhere near the LTA, unless you have very substantial defined contribution pension savings you haven't mentioned?

Whether taking  tax free cash is a good idea depends on (a) the commutation rate offered by your particular scheme and (b) what you'd do with the cash (?could you get a return at least as good as the pension promised by your scheme ?do you need to pay off debts ?do you have plans which require a lump sum - I think not, from your post).

Yes sorry got that wrong. As I understand it Its not a CETV. I did enquire what a CETV would be a couple of years ago and it was higher than my pension statement.

I think the figure i'm quoting is the value (theoretical?) of my benifits at my normal retirement age based on my input into the scheme so far.

Please could you have a look at your statement and see how it describes the £900K - you might see something like 'indicative transfer value' (which is the most likely)?

My benefits statement is a little vague as It doesn't state anything other than "value of your benefits as at 5/4/22 was £845k and proportion of LTA was 78%"

I have received a forcast for april 23 which shows a further input of £73000 this year hence the 900k figure.

Albermarle

I've read a lot on the forum about not taking a DB lump sum on retirement but a bit confused as to why?

The large majority of people take the maximum lump sum, whatever the commutation factor is. Why?

1) Because it is there, and the temptation to get your hands on the cash is too great.

2) Unrealistic view on life expectancy ' My neighbour dropped dead just after retiring, so best to take the money before it happens to me' 

3) It is tax free - and often people prefer not to pay tax, even if overall it is not in their best interest.

4) Many (especially lower paid) see it as a retirement bonus, new car, holidays etc

5) Pay off debts

Only a small minority will financially rationalise the decision as is being discussed in this thread ( on a forum about pensions) .

Marcon

zooks said:

Marcon said:

zooks said:

Marcon said:zooks said:

I've read a lot on the forum about not taking a DB lump sum on retirement but a bit confused as to why?

My own circumstances are that I would like to take early retirement next year when i'm 56.

I will take a 24% hit due reduction factor applied to my DB pension as my normal retirement age would have been 63.

My pot value is aproximately 900k so I will hit the LTA before 63 anyway.

I have the option of taking a yearly pension of aprox 30k plus 3x lump sum, comutate some of my yearly pension to maximise the Lump or take no lump sum to maximise my yearly pension. Comutation factor of my companies pension scheme is 28:1.

I have enough savings to get by and no mortgage so I don't necessarily need the lump sum but i'd assumed that it was best to take as much tax free money as possible away from the taxmans grasp.

Have I got this wrong?

DB pensions don't have 'pots', so I assume you are talking about a Cash Equivalent Transfer Value you've received fairly recently? If so, that's not relevant to the LTA. The value used for a DB scheme is 20 times the pension plus any tax free lump sum available within the LTA, so you have masses of headroom before you get anywhere near the LTA, unless you have very substantial defined contribution pension savings you haven't mentioned?

Whether taking  tax free cash is a good idea depends on (a) the commutation rate offered by your particular scheme and (b) what you'd do with the cash (?could you get a return at least as good as the pension promised by your scheme ?do you need to pay off debts ?do you have plans which require a lump sum - I think not, from your post).

Yes sorry got that wrong. As I understand it Its not a CETV. I did enquire what a CETV would be a couple of years ago and it was higher than my pension statement.

I think the figure i'm quoting is the value (theoretical?) of my benifits at my normal retirement age based on my input into the scheme so far.

Please could you have a look at your statement and see how it describes the £900K - you might see something like 'indicative transfer value' (which is the most likely)?

My benefits statement is a little vague as It doesn't state anything other than "value of your benefits as at 5/4/22 was £845k and proportion of LTA was 78%"

I have received a forcast for april 23 which shows a further input of £73000 this year hence the 900k figure.

All entirely logical, and most people would have done exactly the same - but you have more headroom than you think. The LTA is based on any tax free cash taken as a lump sum, plus 20x the (remaining) pension. Just adding on the input amount to the figure on your benefit statement isn't how it's calculated...this is, after all, the fantasy land known as pensions!

You might suggest to whoever administers your scheme that they make their communications clearer. Saying to member of a DB scheme that 'the value of their benefits is...' without explaining the figure any further isn't the most helpful.

zooks

Marcon said:

zooks said:

Marcon said:

zooks said:

Marcon said:zooks said:

I've read a lot on the forum about not taking a DB lump sum on retirement but a bit confused as to why?

My own circumstances are that I would like to take early retirement next year when i'm 56.

I will take a 24% hit due reduction factor applied to my DB pension as my normal retirement age would have been 63.

My pot value is aproximately 900k so I will hit the LTA before 63 anyway.

I have the option of taking a yearly pension of aprox 30k plus 3x lump sum, comutate some of my yearly pension to maximise the Lump or take no lump sum to maximise my yearly pension. Comutation factor of my companies pension scheme is 28:1.

I have enough savings to get by and no mortgage so I don't necessarily need the lump sum but i'd assumed that it was best to take as much tax free money as possible away from the taxmans grasp.

Have I got this wrong?

DB pensions don't have 'pots', so I assume you are talking about a Cash Equivalent Transfer Value you've received fairly recently? If so, that's not relevant to the LTA. The value used for a DB scheme is 20 times the pension plus any tax free lump sum available within the LTA, so you have masses of headroom before you get anywhere near the LTA, unless you have very substantial defined contribution pension savings you haven't mentioned?

Whether taking  tax free cash is a good idea depends on (a) the commutation rate offered by your particular scheme and (b) what you'd do with the cash (?could you get a return at least as good as the pension promised by your scheme ?do you need to pay off debts ?do you have plans which require a lump sum - I think not, from your post).

Yes sorry got that wrong. As I understand it Its not a CETV. I did enquire what a CETV would be a couple of years ago and it was higher than my pension statement.

I think the figure i'm quoting is the value (theoretical?) of my benifits at my normal retirement age based on my input into the scheme so far.

Please could you have a look at your statement and see how it describes the £900K - you might see something like 'indicative transfer value' (which is the most likely)?

My benefits statement is a little vague as It doesn't state anything other than "value of your benefits as at 5/4/22 was £845k and proportion of LTA was 78%"

I have received a forcast for april 23 which shows a further input of £73000 this year hence the 900k figure.

All entirely logical, and most people would have done exactly the same - but you have more headroom than you think. The LTA is based on any tax free cash taken as a lump sum, plus 20x the (remaining) pension. Just adding on the input amount to the figure on your benefit statement isn't how it's calculated...this is, after all, the fantasy land known as pensions!

You might suggest to whoever administers your scheme that they make their communications clearer. Saying to member of a DB scheme that 'the value of their benefits is...' without explaining the figure any further isn't the most helpful.

Thanks for the update.

I won't get my hopes up of them changing anything as i'm still waiting for the details of "scheme pays" for last years input from them!

Might not use SP anyway. My IFA says use cash, AVC and then SP in that order to settle my excess pension charge.