We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Transfer Defined Benefit lump sum into a SIPP ??

Sayr
Posts: 12 Forumite

Hi. I have a local authority defined benefit pension which I intend to take next year when I retire at the age 56. I've been paying Additional Voluntary Contributions as a salary sacrifice through the council for a few years and will have a combined lump sum (based on 25%) of around £120k. I also have a small separate SIPP of around £30k. Here is my question: Can I officially retire from the council, then take my £120k lump sum and soon afterwards put all this money into my SIPP (into a global index fund such as Vanguard)? Not sure if you are allowed to officially retire and then place a large lump sum into a SIPP to maximise growth/limit tax, or am I restricted because I have already officially retired? Can this be done or are there restrictions? Thanks.
0
Comments
-
Sayr said:Hi. I have a local authority defined benefit pension which I intend to take next year when I retire at the age 56. I've been paying Additional Voluntary Contributions as a salary sacrifice through the council for a few years and will have a combined lump sum (based on 25%) of around £120k. I also have a small separate SIPP of around £30k. Here is my question: Can I officially retire from the council, then take my £120k lump sum and soon afterwards put all this money into my SIPP (into a global index fund such as Vanguard)? Not sure if you are allowed to officially retire and then place a large lump sum into a SIPP to maximise growth/limit tax, or am I restricted because I have already officially retired? Can this be done or are there restrictions? Thanks.
- pension recycling rules (clear breach!)
- tax-relievable contributions to pension schemes are limited by two things: the annual allowance (£60K) and the amount you earn in the tax year when you make the contribution.
The title of your thread refers to 'transferring', which is a different thing altogether (and you'd have to transfer the whole pension, not just the lump sum element). Have a browse on this forum for why transfers from DB schemes to DC schemes is often a seriously bad idea...
Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!2 -
You state your lump sum is £120k based on 25%. 25% of what figure? Reason for asking is it reads as if you may be getting your DB and DC rules mixed up.
DB lump sum is what ever is stated on your annual pension statement, with an option to increase it by buying more lump sum and reducing your annual pension.
Subject to very generous limit your AVC is 100% tax free1 -
Thanks for the advice - I note the pension recycling rules which was a new one for me. Thanks again.0
-
Even if it wasn't breaking recycling rules, why would you want to put tax free cash into somewhere that you were ultimately going to get taxed on a large proportion of it? ISA, savings account (to get tax free allowance, or even pay a bit of tax), premium bonds, under your bed....or as pointed out, exchange for a larger guaranteed pension.1
-
daveyjp said:You state your lump sum is £120k based on 25%. 25% of what figure? Reason for asking is it reads as if you may be getting your DB and DC rules mixed up.
DB lump sum is what ever is stated on your annual pension statement, with an option to increase it by buying more lump sum and reducing your annual pension.
Subject to very generous limit your AVC is 100% tax free
It normally makes sense to take the entire AVC as a lump sum, since it is tax free. Leave any AVC behind, and it becomes an ordinary DC, 75% taxable. OP is not talking about commutation.Marcon said:If you want to maximise growth and limit tax, wouldn't it make more sense to take a smaller lump sum and have a bigger pension?
To the OP, yes, take the AVC as a lump sum (all of it if possible) to get maximum tax benefit. No, you can't pay it into a SIPP. If you don't have any earnings in a tax year (pension doesn't count) you can only pay £2,880 into a SIPP.
In your final year of work, you likely have some headroom to pay into a pension. You can pay in up to your salary (if it's 20k or 30k or 40k) minus what you have already contributed to your work pension (that will be zero if it's all salary sacrifice). If you have any savings, it might make sense to add extra to your AVC if it's less than 25% and if your employer will accommodate you. After you receive your lump sum, you can pay some into a SIPP. Your final year salary is the primary limit, but read about recycling and decide what you feel comfortable with.
So the upshot is you are stuck with much of your 120k lump sum... 20k into an ISA, perhaps twice - before and after April 6th. High interest savings accounts; General investment account; Premium bonds even. There's no simple answer.
2 -
Secret2ndAccount said:daveyjp said:You state your lump sum is £120k based on 25%. 25% of what figure? Reason for asking is it reads as if you may be getting your DB and DC rules mixed up.
DB lump sum is what ever is stated on your annual pension statement, with an option to increase it by buying more lump sum and reducing your annual pension.
Subject to very generous limit your AVC is 100% tax free
It normally makes sense to take the entire AVC as a lump sum, since it is tax free. Leave any AVC behind, and it becomes an ordinary DC, 75% taxable. OP is not talking about commutation.Marcon said:If you want to maximise growth and limit tax, wouldn't it make more sense to take a smaller lump sum and have a bigger pension?
To the OP, yes, take the AVC as a lump sum (all of it if possible) to get maximum tax benefit. No, you can't pay it into a SIPP. If you don't have any earnings in a tax year (pension doesn't count) you can only pay £2,880 into a SIPP.
In your final year of work, you likely have some headroom to pay into a pension. You can pay in up to your salary (if it's 20k or 30k or 40k) minus what you have already contributed to your work pension (that will be zero if it's all salary sacrifice). If you have any savings, it might make sense to add extra to your AVC if it's less than 25% and if your employer will accommodate you. After you receive your lump sum, you can pay some into a SIPP. Your final year salary is the primary limit, but read about recycling and decide what you feel comfortable with.
So the upshot is you are stuck with much of your 120k lump sum... 20k into an ISA, perhaps twice - before and after April 6th. High interest savings accounts; General investment account; Premium bonds even. There's no simple answer.1 -
Secret2ndAccount said:
It normally makes sense to take the entire AVC as a lump sum, since it is tax free. Leave any AVC behind, and it becomes an ordinary DC, 75% taxable. OP is not talking about commutation.Marcon said:If you want to maximise growth and limit tax, wouldn't it make more sense to take a smaller lump sum and have a bigger pension?
I didn't suggest doing other than taking whole AVC tax free. There is plenty of scope for taking the whole AVC tax free and taking a smaller lump sum/bigger pension from the main scheme. With a commutation rate of 12:1, the commutation rate is pretty poor, so taking the maximum cash might not be a great deal, especially as OP doesn't seem from their post to have an immediate use for a cash lump sum - and indeed was talking about immediately putting it into another pension scheme.
OP - see https://www.lgpsmember.org/your-pension/planning/taking-a-lump-sum/#:~:text=You%20can%20exchange%20part%20of,the%20right%20decision%20for%20you.Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!1
Confirm your email address to Create Threads and Reply

Categories
- All Categories
- 350.4K Banking & Borrowing
- 252.9K Reduce Debt & Boost Income
- 453.3K Spending & Discounts
- 243.4K Work, Benefits & Business
- 597.9K Mortgages, Homes & Bills
- 176.6K Life & Family
- 256.4K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.6K Read-Only Boards