Lump Sum Quandary

Dadamutu

Hi, some thoughts please?

I'm approaching 60 and have an old Local Government deferred pension. I'm with another LA currently and will have 21 years in that pension by the time I retire at 67.

My query is, do I take a Max lump Sum now, from my deferred pension, or keep a maximum annual payout?

If I take a 25% lump Sum now will this mean I'm taxed for all of my other pension's lump sum, when I retire from my current job, which will be a considerably higher amount than the deferred one I have available now?

Or do you get 25% tax free allowance for both pensions?

Sorry to appear stupid, I just can't find a sensible answer.

eskbanker

Both pensions should allow a tax-free lump sum on commencement, which will often, but not always, be 25%.

Dadamutu

eskbanker said:

Both pensions should allow a tax-free lump sum on commencement, which will often, but not always, be 25%.

Thank you for the prompt response, that really helps me with my options

af1963

Each will have its own tax free sum available, but it's worth thinking about whether you need the lump sums at all, from either pension.

If these are Local govt pension, they'll probably cost £1k of annual pension given up for every £12k of lump sum, which is not a great option, even tax free, as ( on average) you'd expect to live into your 80s. 

Especially true for the one you can take at 60, as you'll receive it for longer.  £12k now, or £1k a year for (on average) 20+ years.

Secret2ndAccount

Firstly, 25% is the upper limit set by the government. Your LGPS pension has its own way of calculating lump sum payouts. However we can set this aside.
Each pension comes with its own lump sum. Taking the LS from one doesn't affect the LS from the other, subject only to an overall total limit which is currently more than 250k.
Do you have the option to vary the first lump sum - trading lump sum for pension? Be advised that the LGPS trades (commutes is the technical term) at £12 lump sum for £1 lifelong pension. That is a poor offer. Even allowing for 20% tax on the pension payments, £12 taken at age 60 would have been repaid by age 76 by the annual £1's from the pension. From age 76 to whenever, you would be ahead of the game, and those £1 payments are increased each year in line with inflation. So unless you have a very good use for the money now, I would recommend taking a small lump sum and a bigger pension.

Dadamutu

af1963 said:

Each will have its own tax free sum available, but it's worth thinking about whether you need the lump sums at all, from either pension.

If these are Local govt pension, they'll probably cost £1k of annual pension given up for every £12k of lump sum, which is not a great option, even tax free, as ( on average) you'd expect to live into your 80s. 

Especially true for the one you can take at 60, as you'll receive it for longer.  £12k now, or £1k a year for (on average) 20+ years.

I'm so grateful.

My thoughts are aligning with your comments, in that I take the minimum lump sum now, which I can pay off a large chunk of my remaining mortgage, then using the annual pension to pay additional mortgage payments and clear the mortgage within a couple of years. That means more savings available from my current salary, for three or four years until I finally retire. Win, win! 

LHW99

Watch that taking the pension doesn't push you into a higher tax band. If it does, you could pay some of the money into your other LGPS (as AVC?) or a SIPP.

Each could increase the final (total) lump sum you get, subject to the maximum allowed.

Dadamutu

Secret2ndAccount said:

Firstly, 25% is the upper limit set by the government. Your LGPS pension has its own way of calculating lump sum payouts. However we can set this aside.
Each pension comes with its own lump sum. Taking the LS from one doesn't affect the LS from the other, subject only to an overall total limit which is currently more than 250k.
Do you have the option to vary the first lump sum - trading lump sum for pension? Be advised that the LGPS trades (commutes is the technical term) at £12 lump sum for £1 lifelong pension. That is a poor offer. Even allowing for 20% tax on the pension payments, £12 taken at age 60 would have been repaid by age 76 by the annual £1's from the pension. From age 76 to whenever, you would be ahead of the game, and those £1 payments are increased each year in line with inflation. So unless you have a very good use for the money now, I would recommend taking a small lump sum and a bigger pension.

Thank you for taking the time to put your comments forward. This is a great help. I think I have a plan clear in my head now and can move forward. 

Dadamutu

LHW99 said:

Watch that taking the pension doesn't push you into a higher tax band. If it does, you could pay some of the money into your other LGPS (as AVC?) or a SIPP.

Each could increase the final (total) lump sum you get, subject to the maximum allowed.

Noted. Thank you for your comments.