Deferred Defined Benefit Pension- should I take this at 55?

Lil18

I have a defined benefit pension scheme however it is deferred as I left the employment in 2018. I currently earn approx £8500 a year and pay no tax. What I want to do is take a large lump sum and the smaller pension this year when I turn 55., in the hope that I will only pay tax on the lump suma and the yearly pension with my salary will not take me over £12000. Can anyone advise? Pension Wise do not discuss this type of final salary scheme

Dazed_and_C0nfused

Lil18 said:

I have a defined benefit pension scheme however it is deferred as I left the employment in 2018. I currently earn approx £8500 a year and pay no tax. What I want to do is take a large lump sum and the smaller pension this year when I turn 55., in the hope that I will only pay tax on the lump suma and the yearly pension with my salary will not take me over £12000. Can anyone advise? Pension Wise do not discuss this type of final salary scheme

Why do you think you would pay tax on the lump sum?

MeteredOut

Have you read and understood the scheme rules for your DB pension?

What age can you access the pension? Do you have to take it that age? Can you take it early (55) or later? Is taking the lump sum mandatory. Can you change how much lump sum you can take in exchange for a different pension amount? 

You should hopefully be able to come up with a plan to take the lump sum (which would typically be tax free, not taxed) + a pension that will utilise the other £4K+ tax free allowance not already taken up by your £8500 earnings, but no-one can say more without knowing more about the DB pension and the sums involved.

Lil18

Dazed_and_C0nfused said:

Lil18 said:

I have a defined benefit pension scheme however it is deferred as I left the employment in 2018. I currently earn approx £8500 a year and pay no tax. What I want to do is take a large lump sum and the smaller pension this year when I turn 55., in the hope that I will only pay tax on the lump suma and the yearly pension with my salary will not take me over £12000. Can anyone advise? Pension Wise do not discuss this type of final salary scheme

Why do you think you would pay tax on the lump sum?

I think around £5400

JoeCrystal

Why do you think you are paying taxes on "tax free" lump sum?

Lil18

because only 25% of it is Tax Free

Dazed_and_C0nfused

Lil18 said:

because only 25% of it is Tax Free

As it's a defined benefit pension the tax free bit will be set by the scheme rules.

It might be 25% of the "value" of the pension but it might equally be say 3 x the annual pension.

JoeCrystal

But you said that you got defined benefit pension scheme. Which means only lump sum you get from this scheme are wholly tax free. It is not a pot of money after all so the DB pensions are calculated differently. Unless you are referring to AVCs instead.

Lil18

JoeCrystal said:

But you said that you got defined benefit pension scheme. Which means only lump sum you get from this scheme are wholly tax free. It is not a pot of money after all so the DB pensions are calculated differently. Unless you are referring to AVCs instead.

JoeCrystal said:

But you said that you got defined benefit pension scheme. Which means only lump sum you get from this scheme are wholly tax free. It is not a pot of money after all so the DB pensions are calculated differently. Unless you are referring to AVCs instead.

So I didn't know this - this is how much of a "Newbie" I am lol!

dunstonh

because only 25% of it is Tax Free

25% TFC onlty applies to most defined contribution schemes. It does not apply to defined benefit schemes.
DB schemes get pension commencement lump sum.  PCLS is tax free up to the lump sum allowance [limit] and you are nowhere near that.

What you really need to be aware of is the cost of taking it earlier than scheme age.  i.e. how much is is reduced by compared to leaving it closer to the scheme age?