Should I take 25% tax free cash lump sum?

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APSARGENT
APSARGENT Posts: 2 Newbie
in Pensions, annuities & retirement planning
Should I transfer whole private pension worth £150k to a SIPP or take 25%tax free cash lump sum now?
For the sack of comparison take the situation below.
I will invest the money in equity unit trusts expecting a 7% per annum return for either solution.
Which will give me the biggest amount on my 75th birthday, I am 59 now?
Income tax to consider.
CGT to consider
Dividend tax to consider.
I am single with no dependents
Thank you in advance
.

Comments

  • Prism
    Prism Posts: 3,803 Forumite
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    If you did get a 7% yearly return, by your 75th birthday that 150k would be worth 458k. You would be then able to take out 25% of that (115k) tax free. If you took out out now you would only get 38k tax free.

    There are other options though, where you take out some each year to invest in an ISA maybe
  • A_Nice_Englishman
    A_Nice_Englishman Posts: 2,301 Forumite
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    Another thing to consider is what the tax regime for pensions will be like in 16 years time.

    No, I didn't know either.
  • dunstonh
    dunstonh Posts: 116,379 Forumite
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    Should I transfer whole private pension worth £150k to a SIPP or take 25%tax free cash lump sum now?

    Which fits your objectives?
    Which will give me the biggest amount on my 75th birthday, I am 59 now?

    Both would be the same (assuming you invested the 25% in ISA or unwrapped.

    Investment returns of the investments are the same regardless of tax wrapper. Its just the tax that differs.
    CGT to consider
    Dividend tax to consider.

    Are those likely to be an issue?
    Does IHT come into play?
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • APSARGENT
    APSARGENT Posts: 2 Newbie
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    My objective is to have the most money at age 75.
    I am assuming I can fund my lifestyle with other pensions and investments to keep the question simple.
    It looks like using the SIPP then withdrawing the 100K at age 75 will give me the most money at age 75, agree or disagree?
    Anything I have forgotten?
    I guess the government could change the tax free lump sum rules.
  • sheslookinhot
    sheslookinhot Posts: 1,977 Forumite
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    You may not live that long.
    Mortgage free
    Vocational freedom has arrived
  • GDB2222
    GDB2222 Posts: 24,670 Forumite
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    APSARGENT wrote: »
    My objective is to have the most money at age 75.
    I am assuming I can fund my lifestyle with other pensions and investments to keep the question simple.
    It looks like using the SIPP then withdrawing the 100K at age 75 will give me the most money at age 75, agree or disagree?
    Anything I have forgotten?
    I guess the government could change the tax free lump sum rules.

    It's pretty simple actually. If you leave the 25% in the SIPP until age 75, it will grow free of tax. If you take it out now and invest it, you will pay tax on the investment return.

    However, you might mitigate the tax position by using your ISA allowance, if you are not already using it.

    Also, there may be extra costs in having the money invested within the SIPP.
    No reliance should be placed on the above! Absolutely none, do you hear?
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