Pension v fixed term savings for a lump sum

tandyt29

Hi, I’m taking early retirement in 3 years and have come into a lump sum of £10k. Am I better off putting this into my works pension or a fixed savings account considering the timeframe?

Thanks

saajan_12

Need a bunch more info..
- What is your works pension invested in? Mostly bonds if you're close to retirement?
- Whats is your tax band? 
- Do you have unused allowance for pension contributions? 
- Have you maxed out ISAs? 
- What is your expected income during retirement (incl pensions, passive income, etc)
- When do you expect to need the money, ie will your pensions allow you to draw in 3 years time? 

Broadly, if you're at a high tax band and will be at a lower band during retirement, then pension might make sense. You may also be able to invest the money in something lower risk eg bonds. However if you'd need access to the money sooner then savings account may be preferable. You might be able to still shelter the growth from tax if you have room in an ISA. 

tandyt29

Thank you 
I’m lower tax band, I have allowance in both pension and ISA and I can draw on my pension in 3 years 

Albermarle

tandyt29 said:

Thank you 
I’m lower tax band, I have allowance in both pension and ISA and I can draw on my pension in 3 years 

But presumably are not going take 100% of it in 3 years, and you will be taking from it for many years?

tandyt29

I haven’t decided about drawdown yet 

eskbanker

What's best to do with this lump sum is going to depend on how it would affect your post-retirement plans, so if you haven't yet formulated the latter then probably best to keep it in easy access savings for now, assuming that doing so wouldn't prejudice your ability to put it into your pension later on.

Cobbler_tone

I'd maximise my tax allowance on fixed term/regular savers, then move it into an ISA.
Not sure I would put a tax free £10k into a vehicle where the likelihood is that 75% of it could be subject to tax...depending of course on your overall position. It wouldn't work for me.
It if was to enable buying a larger annuity, you could do this at a later date.

eskbanker

Cobbler_tone said:

Not sure I would put a tax free £10k into a vehicle where the likelihood is that 75% of it could be subject to tax...depending of course on your overall position. It wouldn't work for me.

You have to consider both sides of the equation though, i.e. that taxation on the way out of the pension needs to be viewed in the context of the tax relief on the way into it!