DB tax free lump sum - a spanner in the works!
My husband is already retired, but will be 65 later this year and will be taking his DB pension from an old employment.
[As background, I had horrendous dealings with the same scheme administrators in 2019 over a different pension, and I have very little confidence in them. I won’t name names, but @a@Albermarle will know who I mean! ]
The pension administrators have an online illustrator which I have been monitoring over the years, and this has been the type of figure I have been expecting. My husband was going to take the maximum lump sum, but it’s not a major decision in the overall scheme of things for us,
Then at the weekend he received a letter saying that from 1st August 2023 the plan is changing the way the maximum cash lump sum that members can take from the scheme is calculated. All members retiring after that date may be able to sacrifice more of their annual pension for a higher initial cash amount.
A new retirement illustration is available on request, which we have asked for. In the meantime, we went on the online illustrator and it is now showing a maximum TFLS of £83,675, with a reduced annual pension of £12,551. This is a massive difference! It is a life changing amount for us and, if true, means we have to give it a lot of thought.
But my post doesn’t relate to that. My distrust of the administrator makes me wonder if this is a mistake. Or if it’s correct, what has changed?
The plan provides access to a consultant with whom we can discuss the various options. We have spoken to him twice, and he seems knowledgeable but he’s in a different part of the company, and doesn’t know any details of the scheme. He can only submit queries on our behalf. He doesn’t know how the maximum lump sum is calculated, and why it was restricted to quite a low amount in the original options pack. His initial thought was that the recent letter won’t affect us, and we shouldn’t have been sent it.
This seems very odd, and why would we have received the letter if it didn’t affect us? And why has the online illustrator changed to give the new amount? It has been reliable up until now.
It can’t be a change in commutation rate because the calculation of £17,436pa with £11,855 cash is still the same on the latest online illustrations.
What other changes to the plan could allow a higher lump sum? Maybe they’re trying to reduce their commitment to future expenditure, and are offering a cash amount in exchange for no annual increases, but surely that should be made clear?
My thoughts are that the original limit of £11,855 could relate to GMP (my husband’s employment was 1978 to 1991), and I’m not aware of any recent legislation changes which might allow a higher lump sum now.
Has anyone any thoughts on any of the above?
Obviously we have to wait for the new illustration. If it confirms the new TFLS of £83k, we take it, and they later realise that they’ve made a mistake, can they ask for the money back?
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