Ill health retirement

lunalg

Hello

A bit of advice would be much appreciated….

My partner is about to take ill health retirement in a defined contribution scheme.  He has over ten years NPA  

His two options would be

Take an annual salary of £42,500 and a tax free lump sum of £189,000

Or

Take an annual salary of £39,008 and a tax free lump sum of £260,000

I am still working but ideally we would need around £3k salary from her per month to cover household expenditure. We still have three school aged children

What option would you take? Is the bigger lump sum the better option?

Baldytyke88

As I understand the rules, HMRC allows 25% tax free; you get 25% tax free with both options.

lunalg

So my partner would not get the whole lump sum tax free?

Dazed_and_C0nfused

lunalg said:

Hello

A bit of advice would be much appreciated….

My partner is about to take ill health retirement in a defined contribution scheme.  He has over ten years NPA  

His two options would be

Take an annual salary of £42,500 and a tax free lump sum of £189,000

Or

Take an annual salary of £39,008 and a tax free lump sum of £260,000

I am still working but ideally we would need around £3k salary from her per month to cover household expenditure. We still have three school aged children

What option would you take? Is the bigger lump sum the better option?

Do you mean a defined benefit pension and an annual pension of £42,500?

Does she need the higher lump sum or would extra income for life be more suitable? 

lunalg

Not sure the options said annual pension figure plus the tax free lump sum. 

Mark_d

Given your partner's life expectancy I think the larger lump sum is clearly the best option

Dazed_and_C0nfused

lunalg said:

Not sure the options said annual pension figure plus the tax free lump sum. 

The way you have phrased it sounds more like a defined benefit pension. 

A defined contribution pension is where you have a pot of money to use.  And one option would be to buy an annuity.

One potential wrinkle is the Lump Sum Allowance.  Does she have any other pensions of any sort?

Baldytyke88

lunalg said:

Not sure the options said annual pension figure plus the tax free lump sum. 

The 25% tax free is built into both pension options.

Albermarle

lunalg said:

Not sure the options said annual pension figure plus the tax free lump sum. 

Defined contribution pension schemes | MoneyHelper

Defined benefit pensions | MoneyHelper

QrizB

Baldytyke88 said:

lunalg said:

Not sure the options said annual pension figure plus the tax free lump sum. 

The 25% tax free is built into both pension options.

Baldytyke is giving poor advice.

From what you've written, the tax-free lump sums will be as stated. There's no "25%" to worry about.

MallyGirl

Do you have a need for more lump sum? Does the ill health require adaptation of your property for example. Is it a life limiting condition?