Tax free lump sum seems too much.

Vendee wrote: »

Regarding the DC element, I have been given the option of taking a tax free lump sum (PCLS) which works out at 65% of the total DC fund. I was under the impression that I could only take 25% tax free.

The only thing I can think of is that the tax free sum I have been offered represents 25% of my DB pot and DC pot combined. Is that how it works?

This is often the point of buying a parallel DC fund with a DB pension. I targeted the amount of my AVCs such that the combined amount was such that I could take the AVC fund tax free in its entirety. To compute that you multiply the annual value ofthe DB pension at NRA by 20 times, then add that to the AVC amount, as dunroving and this HMRC manual say

Surprised you were unaware of this piece of good fortune - did you not take any interest in the pension while earning it?

Vendee wrote: »

I have been given the option of taking a tax free lump sum (PCLS) which works out at 65% of the total DC fund.

How very agreeable. Perhaps you might like to withdraw the TFLS for some big expenditure you have in mind. Or you could draw it steadily over the years to help you fill some other tax-shelter, e.g. an ISA or a spouse's pension.

Maybe the other 35% will supply some useful income to bridge the gap (if there is one) until your State Retirement Pension begins.

If you are so well off that your estate might face an IHT charge, you might consider leaving capital in the DC pension.

There are other possibilities too.

You are spoilt for choice.

Vendee wrote: »

I was actually planning on using the 65% tax free lump sum (along with the DB pension) to bridge the gap to my state pension kicking in.

Seems fair enough. One question: is your income going to be above the personal allowance against income tax in future tax years? (For this purpose you ignore the TFLS.) If not it could be worth drawing some of the taxable part of that pension to use up the otherwise unused PA.

Vendee wrote: »

The remaining 35% of my pot I was planning to combine with another small DC pension I have and leave that untouched for a rainy day. Having said that, I was wondering if it would be worth taking the 25% tax free part of my second DC pot and sticking it in an ISA?

That's tempting. Governments keep making pensions less attractive while leaving ISAs untouched. Your proposed action would defend you from any more of the same. Another wheeze would be to contribute up to £3600 gross (£2880 net) to a pension in future tax years - perhaps your other small DC - because that beats putting the money into an ISA by about 6%. On the other hand if the basic rate of income tax goes up in future then that advantage might vanish, or even be reversed.

In the present tax year you could presumably contribute much more than £3600, since you have earnings. But then you'd need to check the "anti-recycling" rules that limit the amount of TFLS you can recycle into new pension contributions.