To take or not to take? TFLS

Bookle

Nearing early retirement in 18 months at 60.

A huge part of my plan is the tax free lump sums across a small mix of DB and DC pensions - all added together projected over £200k but less than £268k.
Plan is to take it all and would be used for home move / mortgage clearance in 18 months.

Speculation is of course rife about a reduction to £100k from Autumn Budget.
If implemented with immediate effect would really mess up the plan by losing us potentially £30k or more (pending tax %) which I'd naturally love to avoid.
I know jumping ship now also has negative implications from taking DB / DC early etc but I calculate its a lot less than the potential TFLS tax penalty - at least in the immediate term.

So question is, do I jump now and take some TFLS from one or more of my pensions given I'm relatively close anyway?

Sit tight as there would be a decent transition period anyway?

Or maybe I'd indirectly get most of it back anyway via usual pension contributions tax breaks / fund growth and should also sit tight.

Perspectives / experience very welcome!!

Albermarle

There are numerous threads about this ( same before the previous budget).

The normal advice is not to make financial decisions based on speculation, especially when the speculation is largely in anti Govt media outlets who like scaremongering.

AFAIK the facility to replace the tax free cash if nothing happens in the budget, has now been blocked by HMRC.

dunstonh

Speculation is of course rife about a reduction to £100k from Autumn Budget.

Speculation on tax-free cash happens every year.   Yet it remains at the level set in 2020/21 and is only slightly higher than what it was in 2016/17.     They have been using fiscal drag to erode tax-free cash.    

£250,000 in 2016/17 would be £346,074 in real terms (using BoE inflation calculator).

DT2001

What are the negative implications for you of taking the DB/DC early?

I have recently taken the 25% TFLS (£85k), not because of the potential changes but as a result of thinking the market was quite high and I, hopefully, will need the money to fund a project within a couple of years. I have the added advantage of flexible cash ISAs which I took funds out of for another project so have the option to ‘refill’ them (end of last tax year I used my offset mortgage to role the allowance). I will end up with no change in my asset mix. 

OH has over £400k in her pension and we will not be taking anything from that.

QrizB

Bookle said:

Nearing early retirement in 18 months at 60.
A huge part of my plan is the tax free lump sums across a small mix of DB and DC pensions - all added together projected over £200k but less than £268k.
Plan is to take it all and would be used for home move / mortgage clearance in 18 months.

Hopefully you're in relatively low-risk investments?
The next 18 months might see a >20% increase in the markets, shooting you over the £268k limit, but might instead see a >40% drop, blasting a hole in your plans.

Bookle

DT2001 said:

What are the negative implications for you of taking the DB/DC early?

I have recently taken the 25% TFLS (£85k), not because of the potential changes but as a result of thinking the market was quite high and I, hopefully, will need the money to fund a project within a couple of years. I have the added advantage of flexible cash ISAs which I took funds out of for another project so have the option to ‘refill’ them (end of last tax year I used my offset mortgage to role the allowance). I will end up with no change in my asset mix. 

OH has over £400k in her pension and we will not be taking anything from that.

Negatives would be crystallising at a lower amount taking DB pensions earlier. Plus getting taxed on payments from DB.
Same true of DC combined with loss of potential growth.
Also reduces options to add as much as possible to existing DC in next 12 months before stopping work.

Bookle

QrizB said:

Bookle said:

Nearing early retirement in 18 months at 60.
A huge part of my plan is the tax free lump sums across a small mix of DB and DC pensions - all added together projected over £200k but less than £268k.
Plan is to take it all and would be used for home move / mortgage clearance in 18 months.

Hopefully you're in relatively low-risk investments?
The next 18 months might see a >20% increase in the markets, shooting you over the £268k limit, but might instead see a >40% drop, blasting a hole in your plans.

Yep, everything is low risk having gradually decreased pension investment risk over recent years.

ali_bear

You've de-risked your investments but you are now considering taking a gamble with them based on speculation you have seen in the media. 

Bookle

Thanks for the feedback everyone.
I'm leaning very heavily towards leaving everything as it is - unless a major TFLS leak appears pre-budget.

JoeCrystal

Bookle said:

Thanks for the feedback everyone.
I'm leaning very heavily towards leaving everything as it is - unless a major TFLS leak appears pre-budget.

Going to be an excruciating wait! The budget isn't until 26th Nov! Only 57 days until the day, with plenty of possibilities for gauging reactions! 

DRS1

Bookle said:

DT2001 said:

What are the negative implications for you of taking the DB/DC early?

I have recently taken the 25% TFLS (£85k), not because of the potential changes but as a result of thinking the market was quite high and I, hopefully, will need the money to fund a project within a couple of years. I have the added advantage of flexible cash ISAs which I took funds out of for another project so have the option to ‘refill’ them (end of last tax year I used my offset mortgage to role the allowance). I will end up with no change in my asset mix. 

OH has over £400k in her pension and we will not be taking anything from that.

Negatives would be crystallising at a lower amount taking DB pensions earlier. Plus getting taxed on payments from DB.
Same true of DC combined with loss of potential growth.
Also reduces options to add as much as possible to existing DC in next 12 months before stopping work.

I am not sure what you mean by the bit in bold.  If you just take tax free cash from a DC scheme then you do not trigger the MPAA.  Taking anything from a DB scheme doesn't trigger it either (though I agree you have a good reason not to take the DB bit yet - any reduction to the pension would last a lifetime).

Or maybe you are worried about the lump sum recycling rules?