Over 55. Taking 25% of pension

Linton

It is true that taking the lump sum initially does mean you get less tax-free withdrawal than spreading the TFLS over time.  Sadly though it doesnt actually do you any good assuming that you invest the tax free money in an S&S ISA  in the same way that you would if you were keeping the TFLS.in the pension and that all tax is at 20%.

Lets do some maths:
1) Take lump sum from £100000, invest both over 10 years to give a 100% return and withdraw the lot

Initial TFLS=£25000, amount retained in pension £75000

After 10 years £50000 in ISA, £150000 in pension all taxable
Total tax paid=£50000 X 0 tax+£150000 X 0.2 tax = £30000, total tax free withdrawal=£25000
Net return = £100000 - £30000=£70000


2) Invest for 10 years then take TFLS at the same time as the rest of the pot

Initial TFLS=0, Amount retained in pension=£100000
After 10 years £200000 in pension,  £50000 tax free, £150000 taxed
Total tax paid=£150000 X 0.2=£30000, total tax free withdrawal =£50000
Net return=£100000-£30000=£70000

Albermarle

Sadly though it doesnt actually do you any good assuming that you invest the tax free money in an S&S ISA  in the same way that you would if you were keeping the TFLS.in the pension and that all tax is at 20%.

With that assumption you are correct. However on the other side there is no benefit to taking the TFLS all at once either, so easier just to leave it in the pension, sheltered from IHT if that is a potential benefit ( unless the rules change...)