Lump Sums

anothermartin

I am a member of my employer's final salary scheme.
Currently every £1 of lump sum reduces the subsequent pension by £12 p.a. This seems to be quite a significant reduction and I might be better off not taking the lump sum.

I don't currently, but if I did additionally contribute to a personal or stakeholder pension (or avcs?), could I take the whole of this as a lump sum, or can I only take 25% of each individual pension scheme?

e.g. At retirement Company final salary scheme "fund" value £75,000, personal pension fund value £25,000. Total is £100,000, so take 25% of total from personal pension, giving £25,000 lump sum and full final salary pension.

EdInvestor

Check your scheme rules: some allow this, some don't - AFAIK it tends to apply to AVCs rather than PPs, as the former are tied in to the company scheme..It's a good deal if you can get it.

Lump sum calculations vs extra pension can also be affected by your tax position at retirement.

Andy_L

anothermartin wrote: »

I am a member of my employer's final salary scheme.
Currently every £1 of lump sum reduces the subsequent pension by £12 p.a. This seems to be quite a significant reduction and I might be better off not taking the lump sum.

I don't currently, but if I did additionally contribute to a personal or stakeholder pension (or avcs?), could I take the whole of this as a lump sum, or can I only take 25% of each individual pension scheme?

As Ed says it has to be an AVC linked to the scheme & it has to be allowed by the scheme rules

ps you're quite right 12:1 commutation is a poor deal

anothermartin

Thanks for the info.
I best check the scheme details and look at the avc options.....

Techno

Are you sure you've got this the right way round? I'd double check as in my scheme for every £1 of pension you give up you get £12 of lump sum

Andy_L

Good point, I'd read it as £1 of pension gets £12 lump sum since that's what my (civil service) scheme uses

jonathon_hart

I would agree with Techno I think you have the numbers the wrong way round.

If the Stakeholder is a separate scheme (i.e one you have set up with no relation to the company scheme) then you will definitely only be able to take 25% of each individual pension. If they are combined then check the scheme rules, but it will probably now be 25% of each separately (the rules on this changed slightly).

I will warn you though 25% for a Final salary scheme is not quite as straight forward as it sounds...

anothermartin

You're right, I've checked and its actually £12.50 lump sum reduces the pension by £1. Still sounds like a poor deal to me, I'd probably not be able to re-invest and get the same 8% rate of return.
I'll investigate further to see if AVCs are treated separately or not.

jennifernil

£12.50 for £1 of pension does not sound bad to me. Remember your lump sum is tax free and can be invested as you see fit, while your pension is all taxed. Also, usually, taking the lump sum does not affect widow's pension.

If what remains is enough for you to manage on then taking the lump sum can let you enjoy life more while you are still yong enough and fit enough.

Andy_L

Could you tell me where you can get £1 of (rpi) indexed linked income for life plus spouse benefits for £12.50?

Yes the lump sum gives you flexibility (roof/boiler/sportscar) & is tax free, although income from it might not be.