Maximum tax free lump sum

tryingtounderstandfinance

I’m currently 55.  I’m fortunate to be due a lump sum of about £190,000 from my NHS pension age 60.
 

I no longer pay into the NHS pension (I now work in the private sector) but am saving into a DC pension and hope to have around £500,000 in that when I retire at 65-67. 

I’m aware that the maximum tax free lump sum that can be taken from pensions is approx £268,000. At today’s values I’m assuming I can take about £78,000 from my estimated DC pension as a tax free lump sum? Is all the remainder subject to normal income tax or would I be able to take further tax free income up to 25% of the total pension value (i.e. an additional £47,000 using the figures quoted)? 

I know this is somewhat academic as it’s maybe 10 years into the future and the rules may change, but I wanted to check my understanding of the tax free lump sum v tax free income rules. 
Thanks. 

QrizB

tryingtounderstandfinance said:

I’m currently 55.  I’m fortunate to be due a lump sum of about £190,000 from my NHS pension age 60.

Is that the default lump sum, or does that include commutating some of your pension (ie. reducing it) in exchange for a larger lump sum?

tryingtounderstandfinance

QrizB said:

tryingtounderstandfinance said:

I’m currently 55.  I’m fortunate to be due a lump sum of about £190,000 from my NHS pension age 60.

Is that the default lump sum, or does that include commutating some of your pension (ie. reducing it) in exchange for a larger lump sum?

That involves commutating some of the pension to get the maximum lump sum. I may not necessarily do that but the thinking behind it is that I will likely be a higher rate tax payer in retirement as I will likely do some ongoing work (a couple of days/month) into my 70s if I remain healthy.

DRS1

tryingtounderstandfinance said:

QrizB said:

tryingtounderstandfinance said:

I’m currently 55.  I’m fortunate to be due a lump sum of about £190,000 from my NHS pension age 60.

Is that the default lump sum, or does that include commutating some of your pension (ie. reducing it) in exchange for a larger lump sum?

That involves commutating some of the pension to get the maximum lump sum. I may not necessarily do that but the thinking behind it is that I will likely be a higher rate tax payer in retirement as I will likely do some ongoing work (a couple of days/month) into my 70s if I remain healthy.

I think his point is that you may be better taking a lower TFLS from the NHS scheme and a bigger one from the DC scheme.  The commutation rate will be a factor in that calculation.

Yes that means a higher taxable income but frankly why on earth would you want to work into your 70s if you have a decent pension?

Silvertabby

DRS1 said:

tryingtounderstandfinance said:

QrizB said:

tryingtounderstandfinance said:

I’m currently 55.  I’m fortunate to be due a lump sum of about £190,000 from my NHS pension age 60.

Is that the default lump sum, or does that include commutating some of your pension (ie. reducing it) in exchange for a larger lump sum?

That involves commutating some of the pension to get the maximum lump sum. I may not necessarily do that but the thinking behind it is that I will likely be a higher rate tax payer in retirement as I will likely do some ongoing work (a couple of days/month) into my 70s if I remain healthy.

I think his point is that you may be better taking a lower TFLS from the NHS scheme and a bigger one from the DC scheme.  The commutation rate will be a factor in that calculation.

Yes that means a higher taxable income but frankly why on earth would you want to work into your 70s if you have a decent pension?

This.  the public sector commutation rate is a p.poor 1:12.  ie, give up £1 of fully index linked pension for £12 cash.  

tryingtounderstandfinance

Thanks, that’s helpful and something I’ll ponder. At this stage I plan to continue some (limited) work as I enjoy it and find it intellectually stimulating/challenging. And it’s well paid and can be very flexible as to how much I do. But I may of course change my mind about carrying on for so long! 

QrizB

Everyone guessed where I was going with that question

MallyGirl

tryingtounderstandfinance said:

Thanks, that’s helpful and something I’ll ponder. At this stage I plan to continue some (limited) work as I enjoy it and find it intellectually stimulating/challenging. And it’s well paid and can be very flexible as to how much I do. But I may of course change my mind about carrying on for so long! 

My father thought this way until he realised that the professional fees/insurance etc took a huge chunk of his couple of days a month income.

cfw1994

It does raise the important point about retirement - that you need to retire *to* something.  As ttuf put it, to give yourself something intellectually stimulating and/or challenging.
I’d devote a good chunk of my time to figuring that out over your next 5 years, it sounds like you are in a great position to enjoy a fine retirement 👍

Cobbler_tone

I think sometimes this forum is so focused on retiring ASAP that is overlooked that some people really enjoy working. Either that or it is a very important part of their life and routines.
’Money doesn’t buy you happiness’ isn’t a saying for no reason. It’s about having enough money to enable you to strike the balance you want, whether that involves work or not. It’s why so many people do voluntary work, it’s still ‘work’. Some people aim for round the world cruises, some are just as content in their manicured back garden. We’re all different.
Two of my team are in their late 60’s and never mention retirement despite being financially secure. They both do a very good job.

eastcorkram

@Cobbler_tone

Indeed, all different. I'm retired, but I haven't retired to anything. Not yet anyway. Some of us are happy in our extremely unmanicured gardens