Tax free lump sum from two DB pensions

dbs

I have two DB pensions with a combined LTA of 43% and thinking of taking both this financial year, maximum tax free lump sum minimum pension on both.
Will both lump sums be tax free or only on one?
Any other advice welcome. 

molerat

You can get the lump sum from each pension.

Dazed_and_C0nfused

I have two DB pensions with a combined LTA of 43% and thinking of taking both this financial year, maximum tax free lump sum minimum pension on both.

But is that the sensible option?

How much pension do you have to give up for extra lump sum?

Some schemes have very poor commutation rates.

Andy_L

both.

What is the commutation rate? ie how much lump sum do you get for each £ of pension you give up. It may be a very poor deal

Marcon

dbs said:

I have two DB pensions with a combined LTA of 43% and thinking of taking both this financial year, maximum tax free lump sum minimum pension on both.
Will both lump sums be tax free or only on one?
Any other advice welcome. 

Worth revisiting your thread on this topic - it was a few years back but many of the thoughts then remain valid now: https://forums.moneysavingexpert.com/discussion/5827300/lump-sum-or-no-lump-sum-that-is-the-question#latest

CalJo99

Why not take the PCLS from one, but leave the other intact? Hedging your bets!

I did that in that I am taking the annuity from one pension, but converted the other to DC - and then promptly took the 25% tax free PCLS from the DC one (in case the government change their mind on that!)

That means I have the surety of knowing I'll get an annuity income for the remainder of my life, which is reassuring, but also have the DC 'pension pot' as well to draw down on if necessary as a 'top up'.

The advantage of the DC option is twofold - if you go on earning (I do), you can still pay in any spare income (I pay in whatever might otherwise get income-taxed at 40%). Better still, you can immediately take the PCLS 25% of that annual contribution, as well as getting the tax advantages from contributing to your pension.

The other benefit of DC pension pots is that if they are not empty when you peg out, you can leave them to your children (or named beneficiary I believe?) without paying any (any!) IHT on it (ie, NO damn 40% HMRC filching!)

Annuities are great for oneself personally, but you take a gamble on your longevity, as of course they die with you. In the end, like insurance claims, the long-lived are living off the annuity-capital of those who peg out early....

Note - with the DC pension, once you start to draw on it, you can only make contributions out of earnings of, I believe, a measly £4000 (Rishi might have raised that recently, but there is still a pretty tight limit).

So leave off drawing down as long as you can - plus the more intact the pot, the more to leave the kiddies IHT free.

And with pensionable ages rising for state pensions etc, and general uncertainty etc, it's good to leave a 'ready made' pension pot to kiddies. 

(If you peg out before 75 they can cash in the whole DC pot immediately, I believe, but if you peg out after 75 I think they have to wait until they themselves reach 55 before they can touch it???)

dbs

I will be £470 worse off a year taking the max lump sum from Railway pension so would be losing out at 77 years old.
I will be £1814 worse off a year taking max lump sum from my St Gobain pension losing out at 81 years old.

Railway pension is £56,458 Max lump sum £8,458 yearly v £48,900 min lump sum £8,938 yearly this includes AVCs
St Gobain pension £63,628 max lump sum £9,544 yearly. £26,858 min lump £11,358 yearly no AVS.

Total £120,000 max lump sum £18,012 yearly
Toal £75,758 min lump sum £20,296 yearly

Wife £6,750 yearly pension then next May state pension £10,600. 

Marcon

dbs said:

I will be £470 worse off a year taking the max lump sum from Railway pension so would be losing out at 77 years old.
I will be £1814 worse off a year taking max lump sum from my St Gobain pension losing out at 81 years old.

Railway pension is £56,458 Max lump sum £8,458 yearly v £48,900 min lump sum £8,938 yearly this includes AVCs
St Gobain pension £63,628 max lump sum £9,544 yearly. £26,858 min lump £11,358 yearly no AVS.

Total £120,000 max lump sum £18,012 yearly
Toal £75,758 min lump sum £20,296 yearly

Wife £6,750 yearly pension then next May state pension £10,600. 

It's not possible to compare commutation rates between the two schemes without knowing how much of the Railway lump is funded by your AVCs.

How do the two schemes compare in terms of future pension increases? Are you comparing like for like?

dbs

Marcon said: dbs said: I will be £470 worse off a year taking the max lump sum from Railway pension so would be losing out at 77 years old. I will be £1814 worse off a year taking max lump sum from my St Gobain pension losing out at 81 years old. Railway pension is £56,458 Max lump sum £8,458 yearly v £48,900 min lump sum £8,938 yearly this includes AVCs St Gobain pension £63,628 max lump sum £9,544 yearly. £26,858 min lump £11,358 yearly no AVS. Total £120,000 max lump sum £18,012 yearly Toal £75,758 min lump sum £20,296 yearly Wife £6,750 yearly pension then next May state pension £10,600.  It's not possible to compare commutation rates between the two schemes without knowing how much of the Railway lump is funded by your AVCs. How do the two schemes compare in terms of future pension increases? Are you comparing like for like? Reason for retiring at 61 in July 2023 is ill health, back pain which is making it difficult to concentrate when working, so not planning on taking on another job. St Gobain   St Gobain Age Yearly Pension Max Lump Sum                 Age Yearly Pension Min Lump Sum 61 £9,544 £63,628 61 £11,358 £26,858 62 £9,846 £65,640 62 £11,851 £26,741 63 £10,125 £67,500 63 £12,331 £26,613 64 £10,413 £69,424 64 £12,792 £26,476 65 £10,702 £71,349 65 £13,365 £26,347     St Gobain NRA is 65 years old deferred pension DB Cargo NRA is 60 years old currently I am 61 years old currently paying into this pension.

Below figures taken in March 2023

	DB Cargo
Age	Yearly Pension	Min Sum	BRASS AVC
61	£8,938	£48,400	£48,400
62	£9,500	£53,300	£53,300
63	£10,062	£57,300	£57,300
64	£10,624	£61,300	£61,300
65	£11,186	£65,100	£65,100

	DB Cargo
Age	Yearly Pension	Max Sum	BRASS AVC	Difference
61	£8,339	£55,594	£48,400	£7,194
62	£8,903	£59,538	£52,700	£6,838
63	£9,538	£63,589	£57,300	£6,289
64	£10,113	£67,426	£61,300	£6,126
65	£10,678	£71,191	£65,100	£6,091

dbs

Think I am going to take the max lump sum out of the St Gobain pension place the cash in highest interest rate.
Take the minimum lump sum from the DB Cargo pension because this has the worse commutation rate. 
Also will look into starting a SIPP pension after I have retired.

Bimbly

dbs said:

will look into starting a SIPP pension after I have retired.

You can only contribute to a SIPP up to the amount of your earned income per tax year, or £3600 gross (you pay £2880 to which the taxman adds £720), whichever is higher. Up to age 75.

Pension income does not count as earned income.

(edited to fix typo on £3600 figure)