DB Pension TFLS or not?

Snaphart9

Another long time lurker here.  I have a DB pension which I can take in a few months, £18k without any TFLS or a sliding scale to £15k and £100k TFLS.  I’m wondering what to do, so I thought I’d ask your opinions on the board, should I take all, some or none of the TFLS?
The background is
1. DB annual increase RPI capped at 5%, no benefit if deferred
2. No spouse or dependants
3. Full state pension in 7 years
4. DC pension pot £200k, still working and contributing, intend drawdown
5. No mortgage or debts
6. Savings and investments £300k
7. £1200 pm covers all my expenses, tracked for last 3 years
8. High cost one off expenses e.g. new roof etc can be covered by savings
9. Basic rate tax payer
Amounts approximate for convenience.
Thank you for reading and opinions gratefully received.

Dazed_and_C0nfused

9.  Still basic rate taxpayer with either £15k or £18k additional taxable pension income?

And is it definitely a PCLS of £100k for the loss of just £3k pension?

Commutation factor of 33.33 seems on the more generous side.

£18k without any TFLS or a sliding scale to £15k and £100k TFLS.

Snaphart9

Thanks for the quick reply.  It is a correct commutation factor according to the pension fund website.  I pay in a large amount of my salary to my DC pension so an extra £18k won’t take me to a higher tax band.

Marcon

Snaphart9 said:

Thanks for the quick reply.  It is a correct commutation factor according to the pension fund website.  I pay in a large amount of my salary to my DC pension so an extra £18k won’t take me to a higher tax band.

I'd be checking that factor with the administrators - it is unusually high, even if you are retiring well below the scheme's normal retirement age (and if you are within 7 years of reaching state pension age, that's not likely to be the case).

Lots of other threads on this topic already, so maybe have a look at those? You aren't going to get markedly different responses.

najan49

It's high, but it's not impossible.

I'm a deferred member of a DB scheme which has a commutation factor of 37.67 if I take benefits at the scheme's NRA (60) or 45.68 at age 55 (and other factors in between). 

Pat38493

najan49 said:

It's high, but it's not impossible.

I'm a deferred member of a DB scheme which has a commutation factor of 37.67 if I take benefits at the scheme's NRA (60) or 45.68 at age 55 (and other factors in between). 

I also received a DB pension estimate about 18 months ago with a commutation factor of 40 for age 57, and 28 for age 65.  This was discussed on another thread and it was queried that this was too good to be true, so it's interesting that najan49 seems to be quoting similar numbers.  In my case though, the commutation factors were significantly more generous than what it said on the pension fact sheet.  (although the fact sheet was clearly wrong in other areas too as it said that GMP had not been equalized when it had been done so months earlier).

I have requested another estimate recently to see if I get similar results.  It is Mercer handling it - they have a new portal for requests and you get an auto reply saying to expect a reply within 2 weeks, but that 2 weeks already expired and I am pretty sure in the past they have taken more like 2-3 months.

As to the OP question, commutations in the 30s are considered quite generous I believe, so on the face of it it might be worth considering to take some or all of the TFLS, but this also depends what you are going to do with it.

One small technicality - if you are making large pension contributions still, you may need to make sure you have documented what you are doing around the pension recycling rules (guidelines available at gov.uk).  Theoretically, if you take a TFLS (well technically a PCLS) and then make a significant increase to your pension contributions, this could attract some attention from HMRC under pension recycling rules.  However I wouldn't expect problems in the situation you describe as you can say that you are paying the DB income into the pension if you end up doing some of that.  Also as far as known on these boards, HMRC doesn't seem to actively enforce this right now anyway - at least there are no examples available.

On the flip side, if you take the highest lump sum, under the HMRC guidelines, you could theoretically turn round and put 29% of it back into another pension to get further tax relief on that portion (but at the cost of paying income tax on the other 75%) - can be beneficial in some cases.

Pipthecat

How is your family history?  Will you live long enough to enjoy the pension if you take it?  For comparison my commutation factor is 25.5

Given that your expenses are covered by the lower end DB, I would be tempting to take the TFLS, max out your DC pension contribution (within the rules), top up your ISA and enjoy / invest the remainder.

Snaphart9

 The website allows modelling of the numbers and the db pension:TFLS are correct. It would be the NRA for this DB scheme.  Not sure how much longer I’d be working but no immediate plans to retire.  Other threads around this subject I searched were a bit out of date and not the same circumstances so I thought I’d ask.