Should I take Tax Free Lump Sum in case they change the rules?

Albermarle

zagfles said:

hugheskevi said:

Hoenir said:

MetaPhysical said:

I am going to go against the grain here and I think that a government could and possibly will reduce that £268k tax free cash sum and they may even have the nerve to do it retrospectively from the date of an election victory.  People able to take out such vast sums free of tax are a very soft and easy target for the government to rake in money from.  No one will shed a tear for these people and, indeed, could even be popular with the general electorate to rake in those "scoundrels with all that money".  I know I may get downvoted for this but I think this is very possible.  A government with a huge majority and four to five years out from an election can essentially do what it wants and I foresee that with a labour administration.
  
I also think the LTA will be brought back but maybe at a more realistic £2million.

I am thinking I am going to take the TFLS from my pension in case there is a change and it gets subjected to tapering in some way. 

The number impacted is very very small. A high % also work in the public sector and it's their DB scheme which is impacted. While of interest on social media. Not a topic that's high up on the wider agenda I'd suggest. Other than when the media have little else to comment on. 

It is worth recalling that in the public sector DB schemes, tax free lump sums have effectively been abolished for many years, due to the use of a 12:1 commutation rate.

The LTA affects public sector scheme members adversely, but a lowering of the tax free limit would have very limited financial consequences as even for a higher rate taxpayer in retirement a 12:1 commutation rate is not particularly attractive.

But they could use a linked AVC for the tax free lump sum.

Also under the new rules from April 2024 it would appear that if no tax free lump sum is taken from a DB pension then it doesn't use up the new lump sum allowance, so for instance someone could take a £50k pa DB pension with no PCLS and still have the full £268k available to take from another pension (although I think it would still be max 25% from an unlinked pension, but it's all a bit vague at the moment).

https://www.gov.uk/government/publications/abolition-of-the-lifetime-allowance-from-6-april-2024/abolition-of-the-lifetime-allowance-lta

I hope you are right but as you say it is not 100% clear.
I think I have spotted at least one anomaly. It says under the 'Transition' section.

Where an individual has previously used 100% of their LTA, they will have exhausted their allowances and the transitional calculation will not apply.

So someone who used up 100% LTA taking a DB pension without taking a PCLS, will not be able to take any tax free cash from any other pensions.

zagfles

Albermarle said:

zagfles said:

hugheskevi said:

Hoenir said:

MetaPhysical said:

I am going to go against the grain here and I think that a government could and possibly will reduce that £268k tax free cash sum and they may even have the nerve to do it retrospectively from the date of an election victory.  People able to take out such vast sums free of tax are a very soft and easy target for the government to rake in money from.  No one will shed a tear for these people and, indeed, could even be popular with the general electorate to rake in those "scoundrels with all that money".  I know I may get downvoted for this but I think this is very possible.  A government with a huge majority and four to five years out from an election can essentially do what it wants and I foresee that with a labour administration.
  
I also think the LTA will be brought back but maybe at a more realistic £2million.

I am thinking I am going to take the TFLS from my pension in case there is a change and it gets subjected to tapering in some way. 

The number impacted is very very small. A high % also work in the public sector and it's their DB scheme which is impacted. While of interest on social media. Not a topic that's high up on the wider agenda I'd suggest. Other than when the media have little else to comment on. 

It is worth recalling that in the public sector DB schemes, tax free lump sums have effectively been abolished for many years, due to the use of a 12:1 commutation rate.

The LTA affects public sector scheme members adversely, but a lowering of the tax free limit would have very limited financial consequences as even for a higher rate taxpayer in retirement a 12:1 commutation rate is not particularly attractive.

But they could use a linked AVC for the tax free lump sum.

Also under the new rules from April 2024 it would appear that if no tax free lump sum is taken from a DB pension then it doesn't use up the new lump sum allowance, so for instance someone could take a £50k pa DB pension with no PCLS and still have the full £268k available to take from another pension (although I think it would still be max 25% from an unlinked pension, but it's all a bit vague at the moment).

https://www.gov.uk/government/publications/abolition-of-the-lifetime-allowance-from-6-april-2024/abolition-of-the-lifetime-allowance-lta

I hope you are right but as you say it is not 100% clear.
I think I have spotted at least one anomaly. It says under the 'Transition' section.

Where an individual has previously used 100% of their LTA, they will have exhausted their allowances and the transitional calculation will not apply.

So someone who used up 100% LTA taking a DB pension without taking a PCLS, will not be able to take any tax free cash from any other pensions.

Not necessarily - it's a bit unclear as discussed here https://forums.moneysavingexpert.com/discussion/6487267/lta-excess-charge-abolition#latest

Pat38493

zagfles said:

Albermarle said:

zagfles said:

hugheskevi said:

Hoenir said:

MetaPhysical said:

I am going to go against the grain here and I think that a government could and possibly will reduce that £268k tax free cash sum and they may even have the nerve to do it retrospectively from the date of an election victory.  People able to take out such vast sums free of tax are a very soft and easy target for the government to rake in money from.  No one will shed a tear for these people and, indeed, could even be popular with the general electorate to rake in those "scoundrels with all that money".  I know I may get downvoted for this but I think this is very possible.  A government with a huge majority and four to five years out from an election can essentially do what it wants and I foresee that with a labour administration.
  
I also think the LTA will be brought back but maybe at a more realistic £2million.

I am thinking I am going to take the TFLS from my pension in case there is a change and it gets subjected to tapering in some way. 

The number impacted is very very small. A high % also work in the public sector and it's their DB scheme which is impacted. While of interest on social media. Not a topic that's high up on the wider agenda I'd suggest. Other than when the media have little else to comment on. 

It is worth recalling that in the public sector DB schemes, tax free lump sums have effectively been abolished for many years, due to the use of a 12:1 commutation rate.

The LTA affects public sector scheme members adversely, but a lowering of the tax free limit would have very limited financial consequences as even for a higher rate taxpayer in retirement a 12:1 commutation rate is not particularly attractive.

But they could use a linked AVC for the tax free lump sum.

Also under the new rules from April 2024 it would appear that if no tax free lump sum is taken from a DB pension then it doesn't use up the new lump sum allowance, so for instance someone could take a £50k pa DB pension with no PCLS and still have the full £268k available to take from another pension (although I think it would still be max 25% from an unlinked pension, but it's all a bit vague at the moment).

https://www.gov.uk/government/publications/abolition-of-the-lifetime-allowance-from-6-april-2024/abolition-of-the-lifetime-allowance-lta

I hope you are right but as you say it is not 100% clear.
I think I have spotted at least one anomaly. It says under the 'Transition' section.

Where an individual has previously used 100% of their LTA, they will have exhausted their allowances and the transitional calculation will not apply.

So someone who used up 100% LTA taking a DB pension without taking a PCLS, will not be able to take any tax free cash from any other pensions.

Not necessarily - it's a bit unclear as discussed here https://forums.moneysavingexpert.com/discussion/6487267/lta-excess-charge-abolition#latest

Has any actual legislation been considered for this yet?  Isn't it getting a bit late to get that in place in time for pension providers to adapt their systems as required?

Hoenir

hugheskevi said:

zagfles said:

hugheskevi said:

Hoenir said:

MetaPhysical said:

I am going to go against the grain here and I think that a government could and possibly will reduce that £268k tax free cash sum and they may even have the nerve to do it retrospectively from the date of an election victory.  People able to take out such vast sums free of tax are a very soft and easy target for the government to rake in money from.  No one will shed a tear for these people and, indeed, could even be popular with the general electorate to rake in those "scoundrels with all that money".  I know I may get downvoted for this but I think this is very possible.  A government with a huge majority and four to five years out from an election can essentially do what it wants and I foresee that with a labour administration.
  
I also think the LTA will be brought back but maybe at a more realistic £2million.

I am thinking I am going to take the TFLS from my pension in case there is a change and it gets subjected to tapering in some way. 

The number impacted is very very small. A high % also work in the public sector and it's their DB scheme which is impacted. While of interest on social media. Not a topic that's high up on the wider agenda I'd suggest. Other than when the media have little else to comment on. 

It is worth recalling that in the public sector DB schemes, tax free lump sums have effectively been abolished for many years, due to the use of a 12:1 commutation rate.

The LTA affects public sector scheme members adversely, but a lowering of the tax free limit would have very limited financial consequences as even for a higher rate taxpayer in retirement a 12:1 commutation rate is not particularly attractive.

But they could use a linked AVC for the tax free lump sum.

Only LGPS has that option.

Pat38493 said:

hugheskevi said:

Hoenir said:

MetaPhysical said:

I am going to go against the grain here and I think that a government could and possibly will reduce that £268k tax free cash sum and they may even have the nerve to do it retrospectively from the date of an election victory.  People able to take out such vast sums free of tax are a very soft and easy target for the government to rake in money from.  No one will shed a tear for these people and, indeed, could even be popular with the general electorate to rake in those "scoundrels with all that money".  I know I may get downvoted for this but I think this is very possible.  A government with a huge majority and four to five years out from an election can essentially do what it wants and I foresee that with a labour administration.
  
I also think the LTA will be brought back but maybe at a more realistic £2million.

I am thinking I am going to take the TFLS from my pension in case there is a change and it gets subjected to tapering in some way. 

The number impacted is very very small. A high % also work in the public sector and it's their DB scheme which is impacted. While of interest on social media. Not a topic that's high up on the wider agenda I'd suggest. Other than when the media have little else to comment on. 

It is worth recalling that in the public sector DB schemes, tax free lump sums have effectively been abolished for many years, due to the use of a 12:1 commutation rate.

The LTA affects public sector scheme members adversely, but a lowering of the tax free limit would have very limited financial consequences as even for a higher rate taxpayer in retirement a 12:1 commutation rate is not particularly attractive.

Are you sure?  I've seen a few threads here claiming that lots of people in the public sector still take the maximum lump sum available as they are not even aware that 12:1 is not a good rate.

Lots take it, but that doesn't change the fact that it is effectively taxed and poor value.

They can afford to take it as their remaining pension is far above those in the private sector. Also now receive a full state pension. 

Pat38493

[Deleted User] said:

Pat38493 said:

Has any actual legislation been considered for this yet?  Isn't it getting a bit late to get that in place in time for pension providers to adapt their systems as required?

The Finance Bill is published here: https://bills.parliament.uk/bills/3514  The draft legislation is in Schedule 9 and may change before Royal Assent.  If anyone wants to look at it, be aware it is quite complicated.

And also it is basically amending the finance act 2004 so you would then have to read that to see what it means (which might be amending another previous one?!).

Would anyone like to hazard a guess as to how many of the MPs who actually have to vote on this stuff understand and read through all this?

Hopefully someone will come along at some point with a summary of what it means and any significant consequences (e.g. the DB pensions point discussed above).

RogerPensionGuy

David7823 said:

I'm 57, and considering retiring within next year, I have £900k in Pension Funds and no mortgage, or debts. My wife expects to continue working for some more years. I don't need any lump sum for any spending plans, so my natural inclination is to ignore the lump sum and drawdown a monthly income of around £3k gross which should attract minimum tax (£2800/year by my calc)

But is it possible that some future government limits the current 25% tax free withdrawals and I regret not having taken that 25% as a lump sum when I could?

I guess any such change would have to provide notice so that we could withdraw before it came into effect. 

Any thoughts on whether I should consider taking my 25% lump sum in advance, or not?

I have just been reviewing these pensions threads again like I do and especially as I'm just making some big pension decisions and trying to cover plan for possibilities. 

Anyways,reference the above, 36K PA minus £12,570 personal tax threshold, leaving about 23.5K and say 25% is TFLS, that leaves about 17.7k taxable and that is 3.5K Tax and not 2.8K PA. 

Have I got the wrong end of the stick?

BlisteringBarnacles

Old post, but since no one replied, I wanted to contribute :

Take out £ 36K pa. Tax free part = 25 % of this = 25% of 36K = 9K. That leaves 36K - 9K = 27K as taxable. Personal allowance is 12,570. Taxable amount = 27,000 - 12,570 = 14,430. Tax due = 20% of 14,430 = 2886

Hope that helps

ali_bear

Interesting thread, if old. 

Going back to the OP's question with a pot of 900K (say) and whether to take the TFLS. If he leaves it for now and starts to draw down on the fund, can he take the TFLS at some later date from what remains in the fund? And the drawdowns up until that point get the initial 25% tax free? Is that how it works? 

Dazed_and_C0nfused

ali_bear said:

Interesting thread, if old. 

Going back to the OP's question with a pot of 900K (say) and whether to take the TFLS. If he leaves it for now and starts to draw down on the fund, can he take the TFLS at some later date from what remains in the fund? And the drawdowns up until that point get the initial 25% tax free? Is that how it works? 

You can't take taxable income and leave the associated TFLS in the pension pot.

Albermarle

ali_bear said:

Interesting thread, if old. 

Going back to the OP's question with a pot of 900K (say) and whether to take the TFLS. If he leaves it for now and starts to draw down on the fund, can he take the TFLS at some later date from what remains in the fund? And the drawdowns up until that point get the initial 25% tax free? Is that how it works? 

If you understand about uncrystallised and crystallised pension pots it all becomes a bit clearer.

An untouched pension pot is uncrystallised. To withdraw money you have to crystallise some/all of the pot. From the amount crystallised you get 25% tax free immediately, and 75% is  left as crystallised, which means if withdrawn it is classed as taxable income.

For example if you had an uncrystallised £200K pot and crystallised £40K.
You would then have £10K tax free in your bank account, £30K crystallised and £160K still uncrystallised.