Pension (Lump Sum)

dosh1

Hi there,

Hopefully you can help.

I have private and public (NHS) pensions that mature at different times.

With all three I have the options of taking a lump sum with monthly income.

I am really confused as reading literature for each of the pensions it says the firs 25% is tax free.  However I am aware of other people that have not been charged tax on their lump sums and so have been tax free sums.

I haven't accumulated more than the £268,275 accumulated pension that the GOV.UK is stating.

Is anyone a guru on this that can advise please?

I think I probably need to get pension advice but I wanted to pose the question on this forum in the interim.

Thanks

Linton

The lump sum is tax free, the ongoing income is taxed.

For a DB pension the size of the tax free lump sum is determined by the scheme rules.  The fixed 25% figure only applies to DC pensions such as your private one.

Albermarle

There are two basic types of pensions.

Defined Benefit - the NHS pension is an example. You accumulate rights to an annual pension, based on your years of employment. These types of pensions are very good, and mainly only still available when you work in the public sector ( although past pensions built up with private employers that have now stopped, will still pay out)

Defined Contribution - A pot of money is built up from contributions. This can be deployed to generate a pension income. Really just like a big savings account, although mostly the money is invested in the financial markets.

With the latter you can take 25% of the pot tax free.

With the former you can have a PCLS ( Pension Commencement Lump sum) that is tax free, but it is not specifically 25% of anything. If you take the PCLS, then the annual pension is reduced accordingly .Usually it is better not to take the PCLS and have the higher pension, but most people do take it.

Pension basics | Help with pension basics | MoneyHelper

Marcon

dosh1 said:

I am really confused as reading literature for each of the pensions it says the firs 25% is tax free.  However I am aware of other people that have not been charged tax on their lump sums and so have been tax free sums.

You seem to be confusing yourself, judging by this sentence! The definition of tax free lump sums means they are tax free. As explained above, 25% of a defined contribution pot is tax free; defined benefit schemes have their own rules for how much tax free cash you can take.

Albermarle said:

There are two basic types of pensions.

Defined Benefit - the NHS pension is an example. You accumulate rights to an annual pension, based on your years of employment. These types of pensions are very good, and mainly only still available when you work in the public sector ( although past pensions built up with private employers that have now stopped, will still pay out)

Defined Contribution - A pot of money is built up from contributions. This can be deployed to generate a pension income. Really just like a big savings account, although mostly the money is invested in the financial markets.

With the latter you can take 25% of the pot tax free.

With the former you can have a PCLS ( Pension Commencement Lump sum) that is tax free, but it is not specifically 25% of anything. If you take the PCLS, then the annual pension is reduced accordingly .Usually it is better not to take the PCLS and have the higher pension, but most people do take it.

Pension basics | Help with pension basics | MoneyHelper

In the case of the NHS scheme, it's 25% of the capital value of the NHS scheme benefits: https://www.nhsbsa.nhs.uk/employee-section/understanding-your-statement/maximum-lump-sum