LGPS LumpSum Advice please

hyubh

Albermarle said:

Redsox64 said:

Sorry to jump in on this post but it raised a question in my mind?  If you get an automatic lump sum as part of LGPS (and are unlikely to commute any of your pension) does that count towards the 25% you can take tax free?

You can take a tax free lump sum from any pension you have. If it is a DB pension like LGPS, the lump sum is not actually 25% ( as there is no specific sum to be 25% of) but a sum defined by a calculation in the scheme rules.

That is not true... it is explicitly '25% of the capital value of the member's accrued rights ... in relation to that benefit crystallisation event' in the scheme regulations (reg 33 to be specific). Most modern public sector scheme pensions are the same. This 25% is the same as the limit in covering pensions taxation law.

Albermarle

hyubh said:

Albermarle said:

Redsox64 said:

Sorry to jump in on this post but it raised a question in my mind?  If you get an automatic lump sum as part of LGPS (and are unlikely to commute any of your pension) does that count towards the 25% you can take tax free?

You can take a tax free lump sum from any pension you have. If it is a DB pension like LGPS, the lump sum is not actually 25% ( as there is no specific sum to be 25% of) but a sum defined by a calculation in the scheme rules.

That is not true... it is explicitly '25% of the capital value of the member's accrued rights ... in relation to that benefit crystallisation event' in the scheme regulations (reg 33 to be specific). Most modern public sector scheme pensions are the same. This 25% is the same as the limit in covering pensions taxation law.

OK, point taken, but from the clients point of view, they rely on the scheme to give them a figure for the PCLS, as they can not calculate it themselves in advance as 25% of a certain amount. Is that correct ?

Silvertabby

Albermarle said:

hyubh said:

Albermarle said:

Redsox64 said:

Sorry to jump in on this post but it raised a question in my mind?  If you get an automatic lump sum as part of LGPS (and are unlikely to commute any of your pension) does that count towards the 25% you can take tax free?

You can take a tax free lump sum from any pension you have. If it is a DB pension like LGPS, the lump sum is not actually 25% ( as there is no specific sum to be 25% of) but a sum defined by a calculation in the scheme rules.

That is not true... it is explicitly '25% of the capital value of the member's accrued rights ... in relation to that benefit crystallisation event' in the scheme regulations (reg 33 to be specific). Most modern public sector scheme pensions are the same. This 25% is the same as the limit in covering pensions taxation law.

OK, point taken, but from the clients point of view, they rely on the scheme to give them a figure for the PCLS, as they can not calculate it themselves in advance as 25% of a certain amount. Is that correct ?

From experience, diy'ers almost always fail to take into account the reduction to the capital value post commutation.  

Yes, the maximum tax free cash allowed by HMRC is 25% of 20 X annual pension plus 1 X any automatic lump sum - but the actual lump sum payable is then determined by the scheme commutation rate. ie, 25% of the new, lower, capital value.

In the case of the public sector 1:12, especially when there is no automatic lump sum, that can make quite a difference.

EG:

Annual pension £20K X 20 = £400K capital value.

£400K X 25% = £100K maximum tax free cash allowed by HMRC

After Commutation:

Annual Pension = £12,857.14 X 20 = £257,142.80

Tax free lump sum = £85,714.27

£257,142.80 + £85,714.27 = £342,857.09 X 25% = £85,714.27

This example also shows the eye-watering cost of commutation at a rate of 1:12.....