Can this be correct regarding 25% tax free withdrawal?

BENNZ787

I have two DC funds and a DB pension I haven't touched. My DB pension was closed to further accrual some years ago. I'm still working.

I've made enquiries about taking out my 25% tax LFS. I have been told the following:

£1,073,100 x 25% = £268,275.  This is known as the Lump Sum Allowance or LSA.

This is the maximum tax-free cash that can be extracted from your UK Pensions. (unless you had previously registered for lifetime allowance protection with HMRC).

However, your DB consumes your LSA.  It is assumed that you will take 25% from your DB scheme.

Calculation is £18,000 x 20 x 25% = £90K

 So £268,275 - £90,000 = £178,275 max TFC remaining. 

FIREDreamer

https://forums.moneysavingexpert.com/discussion/6671142/can-this-be-correct-regarding-25-tax-free-withdrawal

You only allow for any actual tax free cash taken. If you don’t take any, the full £268,275 still applies to your other pensions.

BENNZ787

This response was given to me by a financial advisor, from a company I'm currently not impressed with.

It didn't make sense to me but how can they be so wrong? Is there a possibility they are correct and we have it wrong?

Thank you in advance for any responses.

DRS1

What is it you think is incorrect? The method used for working out the DB lump sum? It is a method used for some purposes but it almost certainly is not how the DB Scheme will work out the PCLS you will actually receive. For that you will need to refer to the rules of the scheme and the commutation rate it uses. Typically you would give up a certain amount of annual pension for the lump sum. The rate may be something like 12:1 - ie £12 of lump sum for £1pa pension given up. 12:1 is incidentally thought to be a very poor rate and if that is the rate used then people on here would say don't take the lump sum.

Are you concerned that £178k is less than 25% of your DC pension pots? Are you thinking you want to take the lump sums from the DC pensions before you start taking your DB pension?

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82023265#Comment_82023265

It looks like they have simply made an estimate of the size of the tax free lump sum that your DB pension will pay out, to show you how it all works.

Also they have assumed you will take the maximum lump sum from your DB pension, because most people do.

It is just an illustration, and in that respect the calculation is correct.

BENNZ787

I wish to leave my DB pension intact. I want to take 25% from my two DC Funds which has just about given me the max allowable.

zagfles

https://forums.moneysavingexpert.com/discussion/comment/82023265#Comment_82023265

They were talking rubbish. Advisers taking rubbish isn't uncommon! If the DB is untouched then the LSA will only get reduced by the amount of TFLS actually taken. (It's more complicated if you'd taken the DB before 2024 but this isn't the case here).

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82023302#Comment_82023302

Some DB schemes have an automatic lump sum or a minimum lump sum. You should check yours to see what is what - ie can you actually decide to take no lump sum from the DB scheme if you have used up all your LSA with the DC schemes? Or do you have to leave a margin for the DB lump sum? While you are checking that you could ask about the commutation rate to see if taking no lump sum from the DB Scheme is actually a good idea.

QrizB

I wish to leave my DB pension intact

When exactly do you plan to take your DB pension?

Do you know whether it has an automatic lump sum, and do you know how much that will be?

Edit: I see you are (or were) with SJP. Was it one of their advisors salesforce that you were speaking with?

BENNZ787

No automatic lump sump and I can take any time from now until 65. I wish to leave it intact as it's my bread and butter cost of living income. No interest in taking any lump sum from it. If I leave it until 65 it becomes approx 23K - which I plan to do.

Considering I'm paying the advisor's company more than 4k a year in fees I find it hard to believe I can get such negligent advice (but previous experience, maybe not).

QrizB

If there's no automatic lump sum then you don't need to take any lump sum from it. And if you don't take a lump sum, it doesn't count towards the lump sum allowance.

Your advisor seems to be living in the pre-LSA world, when the DB did count towards the LTA - but the LTA was abolished when the LSA was introduced.

Considering I'm paying the advisor's company more than 4k a year in fees I find it hard to believe I can get such negligent advice (but previous experience, maybe not).

You could make a complaint and they might decide to give you a small bung in recognition of their terrible service.