Teacher's Pension tax free lump sums

Dazed_and_C0nfused

mHettyR said:

Hi,
I am just about to take a teacher’s pension and am considering whether or not to take the maximum lump sum or no lump sum to maximise my monthly payments. However I am confused about the tax status differences between the 2 options. If I take a maximum lump sum - tax free, I think I all of the monthly payments will be subject to tax. However, if I take no lump sum I have been told by TPS that the whole of my monthly payments will again be subject to tax, I will not get 25% of it tax free. This doesn’t seem to make sense. Notwithstanding that, I know that other pensions do receive a 25% tax free allowance on the monthly payments, having foregone the lump sum. I would be so grateful if someone could confirm the TPS advice. Thanks in advance.

TPS are 100% correct.

A PCLS is tax free (subject to the over riding limit of ~£268k that applies to most people), the Teachers pension income is taxable.

So if you choose to take a smaller or no PCLS in return for more guaranteed lifelong income it would all be taxable.  The tax payable will of course depend on, at the very least, what other income you have, what type(s) of other income you have and how much the Teachers pension is.  

If you are considering taking more PCLS you should also consider the value of that.  If you are getting £12 in (tax free) PCLS in return for giving up £1 of inflation proofed income for the rest of your life you might want to look at the real cost of the £12 over the next 30+ years you could be receiving the pension 

mHettyR

Thank you very much!