Lump sum or increased annual àmount
vixen1500
Forumite Posts: 629
Forumite
Hiya all, if I take a lump sum out of my pension it's tax free.
Therefore £1,000 lump sum .non taxable equals £1,020
If I choose higher annual payments paid monthly and no lump sum, is all of the annual payment Taxable?
Hope this question makes sense
Therefore £1,000 lump sum .non taxable equals £1,020
If I choose higher annual payments paid monthly and no lump sum, is all of the annual payment Taxable?
Hope this question makes sense
Typically confused and asking for advice
0
Comments

vixen1500 said:Hiya all, if I take a lump sum out of my pension it's tax free.
Therefore £1,000 lump sum .non taxable equals £1,020
No  you'd pay £200 (assuming you are a basic rate taxpayer) if a lump sum of £1,000 is taxable, so a tax free lump sum of £1,000 is 'worth' more than £1,020 in tax terms.vixen1500 said:
If I choose higher annual payments paid monthly and no lump sum, is all of the annual payment Taxable?
Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!1 
Lump sum £1000 is equivalent to £1250 of taxable income if you're a standard rate taxpayer outside Scotland. (If you got £1250 taxable income, you'd pay 20% tax on it, reducing it to £1000)
Depends on what type of pension. If (as it sounds like) it's a final salary scheme, yes, all the regular amounts would be taxable. Usually for this type of pension, you get a onetime choice when you start taking the pension about whether to take a lump sum, and how much.
If it is using drawdown to take money from a defined contribution scheme, then 25% of each withdrawal is tax free if you haven't already taken the tax free cash on that part of the fund as a lump sum earlier.
1 
the pension income is taxable but what tax you pay will depend on any other income. If the pension pays out below the nil rate band of £12k ish then you won't pay any tax, if between £12k and £45k/50k ish then you will pay 20% of the amount over £12k ish. Just like a job.I’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
& Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing [email protected].
All views are my own and not the official line of MoneySavingExpert.0 
Thanks everyone,
So it definitely sounds like taking the lump sum is the sensible option.
Especially as I was incorrectly working out the amount tax of due per £1,000.
I was uncertain as I have no current use/need for a lump sum if it would of been more financially beneficial to have left it in the pension pot.
I am already a basic rate tax payer, would probably push me into higher rate bbracket taking the higher annual payment.
Thanks again for your helpTypically confused and asking for advice0 
The fact that the lump sum is not taxable, but the higher pension payments would be considered as taxable income for income tax purposes, does not necessarily mean it's a "no brainer" and you should always take the lump sum. This also depends on what is termed the "commutation rate" i.e. how much lump sum do you get for each pound of income you lost.
Different schemes have wildly different commutation rates and you would need to take that into account, and also an understanding of how the monthly pension payments will increase once it's in payment.
(this assumes you are talking about a defined benefit pension as other posters indicated).3 
vixen1500 said:Thanks everyone,
So it definitely sounds like taking the lump sum is the sensible option.
Especially as I was incorrectly working out the amount tax of due per £1,000.
I was uncertain as I have no current use/need for a lump sum if it would of been more financially beneficial to have left it in the pension pot.
I am already a basic rate tax payer, would probably push me into higher rate bbracket taking the higher annual payment.
Thanks again for your help
Taking more than the standard PCLS from a DB pension isn't always a good choice financially, a lot on depends on the rate of exchange, which can be as low as £12 one off PCLS for each inflation protected £1 of pension income forever given up.1 
Hiya,
According to the letter it is a 'Pension and Death Benefit Plan'.
I have been paying into and withdrawing from the Hargreaves Landsdown SIPP for the last couple of years to take advantage of the £720 tax relief. Will that affect the amount I can withdraw tax free from this one?Typically confused and asking for advice0 
vixen1500 said:Hiya,
According to the letter it is a 'Pension and Death Benefit Plan'.vixen1500 said:
I have been paying into and withdrawing from the Hargreaves Landsdown SIPP for the last couple of years to take advantage of the £720 tax relief. Will that affect the amount I can withdraw tax free from this one?Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!1 
Hiya,
After searching through related paperwork I have found the following information:
'The plan is a contractedout defined benefit, final salary pension scheme '.
Does this help??Typically confused and asking for advice0 
vixen1500 said:Thanks everyone,
So it definitely sounds like taking the lump sum is the sensible option.
Especially as I was incorrectly working out the amount tax of due per £1,000.
I was uncertain as I have no current use/need for a lump sum if it would of been more financially beneficial to have left it in the pension pot.
I am already a basic rate tax payer, would probably push me into higher rate bbracket taking the higher annual payment.
Thanks again for your help0
Categories
 All Categories
 338.8K Banking & Borrowing
 248.6K Reduce Debt & Boost Income
 447.5K Spending & Discounts
 230.7K Work, Benefits & Business
 600.7K Mortgages, Homes & Bills
 171K Life & Family
 243.9K Travel & Transport
 1.5M Hobbies & Leisure
 15.9K Discuss & Feedback
 15.1K Coronavirus Support Boards