Taking 25% tax free lump sum from DC AND DB pension. Is this possible?

scaashiana

Hi

I'm around 1 year away from retirement. I plan to utilise UFPLS to withdraw money from my one DC pension pot.

I also have a DB pension, which is a 'frozen' pot from a previous final salary scheme, where I plan to utilise an annuity for guaranteed income.

My question is; given that I plan to use UFPLS for my DC pension, can I ALSO take a 25% tax free lump sum from my DB pension?

Marcon

Yes, if the rules of the DB scheme permit you to take that amount. Keep in mind too that there's an overall limit on how much tax free cash you can take from your pensions. The Lump Sum Allowance is currently £268,275, so most people don't need worry about exceeding it!

Your old DB pension will have been revaluing each year, so will be worth more than when you left active membership of the scheme. It will automatically pay you a pension for life, plus whatever tax free cash the rules offer and you choose.

DRS1

With a final salary scheme you usually find you have a choice about how much if any lump sum you take. A key piece of information is the commutation rate - ie how much annual pension you have to give up for how much lump sum. If the rate is low (eg £12 lump sum for £1 pension) then people on here would suggest not taking the lump sum. Obviously all sorts of factors go into the calculation such as your tax rate your health and whether the pension increases in payment and if so by how much.

dunstonh

I also have a DB pension, which is a 'frozen' pot from a previous final salary scheme, where I plan to utilise an annuity for guaranteed income.

<pedantic mode on>

It won't be frozen. Its not a pot and you won't buy an annuity. It is deferred and it will pay a scheme pension.

<pedantic mode off>

My question is; given that I plan to use UFPLS for my DC pension, can I ALSO take a 25% tax free lump sum from my DB pension?

DB pensions don't have 25% tax free cash. They use a different method to calculate the pension commencement lump sum (PCLS) that is designed to broadly be similar to 25% TFC but as there is no pot with DB pensions, they can't use 25%. With DC pensions, its pretty easy to say that 99% of the time, you should take your 25% (either up front or on drip/phased). However, with DB pensions it isn't as simple as you need to calculate the breakeven points and very often, not taking any tax free cash or the minimum works out to be the best option financially.