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Old 17th May 2017, 18:50   #11
steve-45
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That's a shame, mine was really good and gave me a "redundancy" package too.

Check your state pension amount.
as your years of National Insurance contributions make a huge difference
to what state retirement pension you will get.
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Old 17th May 2017, 18:57   #12
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Yes, as above, you will have to pay INCOME TAX on anything over £11,500 per year, but £11.5K is only £220 per week.

Its a fact of life that anyone with a half decent company pension + state pension will be paying income tax until the day they die.

I would rather be paying tax than not, as that means your income is over £11,500 per year.

Taking a lump sum and drawing your pension early will have quite a drastic effect on what you think you may get.

Has your pension provider given you any figures yet ?
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Old 17th May 2017, 19:38   #13
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take professional advice

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Old 17th May 2017, 20:22   #14
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Quote:
Originally Posted by steve-45 View Post
Yes, as above, you will have to pay INCOME TAX on anything over £11,500 per year, but £11.5K is only £220 per week.

Its a fact of life that anyone with a half decent company pension + state pension will be paying income tax until the day they die.

I would rather be paying tax than not, as that means your income is over £11,500 per year.

Taking a lump sum and drawing your pension early will have quite a drastic effect on what you think you may get.

Has your pension provider given you any figures yet ?
Got some detailed figures so it's up to me to work out the best options , sadly i won't get the £11.5k tax mark (not far off though )
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Old 17th May 2017, 20:25   #15
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I took early retirement (at 57) from BT last year after 39 years. The advice I received was to take the largest lump sum which is tax free and equals a quarter of your total pot.

Whilst this reduces the monthly income the fact is that you now have that cash and, if you died tomorrow, it's still part of your estate.

I've since paid off my mortgage, spread some into investments in low-cost share ISAs (nutmeg & moneyfarm) and even bought £10k of premium bonds. I've been happily married for 33 years so happy to put a lump into a pension for my wife (she didn't previously have one) which immediately is topped up by 25% by the government. I also did the same for myself (and gained 25%) with a nominal maturity in five years.

So far my remaining cash has grown above inflation and certainly more than it would have done if i had left it in the pot.

Basically I'm allowing myself to spend it all by the time I start receiving a state pension at the age of 66

Footnote: I calculated that the difference between the small and the big lump sums was equal to about 26 years or so of the difference to the two different monthly payments. So, in other words, ignoring any extra returns (or losses) from investments I might might make, I will pass the point of being better off with the smaller lump sum when I'm 83.....if i make it that far.
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Last edited by vacuman; 17th May 2017 at 20:34..
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Old 17th May 2017, 20:58   #16
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Personally I'd always take the money.

I would also consider how long wold it take to pay the lump sum if you take the extra monthly payment?


You'd have to claim your pension for those many years before you start to see any benefit.

Edit :Basically what vacuman said. i really should read all the posts before posting.

Last edited by Daveluck; 17th May 2017 at 21:01..
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Old 17th May 2017, 21:43   #17
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Quote:
Originally Posted by myfirstrover View Post
Got some detailed figures so it's up to me to work out the best options , sadly i won't get the £11.5k tax mark (not far off though )
Jon - is your scheme a defined benefit scheme or a defined contribution scheme?

If it is defined benefit (or Final Salary scheme) your pension will usually have distinct guaranteed benefits - as long as the scheme is reasonably well funded that is!

However, the spouses pension on the death of the original member can be quite poor compared to the full transfer of fund available within a money purchase Drawdown arrangement for example.

If it is a defined contribution scheme (money purchase scheme) then whilst the guaranteed retirement benefits are not there, recent relaxation of pension rules means that there are significant tho very different benefits now available via these schemes.

For example compulsory annuitisation at age 75 no longer applies plus the whopping 55% recovery tax that used to apply to any fund still in the pot on death of the surviving spouse has been scrapped.

Even better, this fund can be passed to your children tax free if you and your spouse die before age 75 - and it still passes to your children when you die after age 75 but the fund is taxed at the rate of the person receiving it.

All these rule changes are significant and not always appreciated by those, like yourself, who have to make a decision. So get ting advice is crucial

Remember - whatever decision you make is irreversible. Some options like Drawdown and Phased Retirement (also known as Staggered Vesting) allow you to take an "income" for many years and even until death - so these are increasingly popular - so I would suggest you see a pension specialist who is authorised by the FCA to give advice in this complex area.
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Old 17th May 2017, 22:12   #18
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Quote:
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Got some detailed figures so it's up to me to work out the best options , sadly i won't get the £11.5k tax mark (not far off though )
I agree with Darcydog about getting professional advice etc for the reasons he gives. I retired from the NHS with a pension made up to 40 years, following a serious accident, but 2 years later, I managed to get back into work full time doing something different. My only comment about taking the bigger lump sum is, that it can soon go.
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Old 18th May 2017, 06:19   #19
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I would recommend caution in taking the full "tax free lump sum" ( note - they changed this to 'pension commencement lump sum' (PCLS) a while back - so we can assume that it may not always be tax free ) - and can I confirm that currently all of the PCLS is tax free. The post above that says that in some circumstances anything over £30k can be taxable confuses the tax treatment of Redundancy Payments with the PCLS.

The reason why I say be cautious is because if you leave the fund intact within the pension it is growing virtually tax free and should you die then if you have been sensible and set up a Trust to accept the death claim value on behalf of your spouse and children then the entire pension value falls outside of your estate for IHT purposes.

Contrast that to taking the PCLS out of the pension. Once you have done that you have removed this sum from the pension where it is in one of the most tax efficient environments possible - and! - should you die prematurely then the entire pension fund can easily and simply be outside of your estate for IHT purposes whereas the PCLS, once removed from the pension is usually placed in a taxable environment both for Income Tax and Inheritance Tax.

PHASED RETIREMENT

And don't forget you can always access this PCLS as slices of tax free "income".

Money purchase pension is written in segments - usually as 100 sub policies. So if you have £100,000 in a pension then you could have 100 policies of £1000.

So rather than taking £25,000 a a tax free PCLS leaving £75,000 in Drawdown, say, - you could access twenty segments from the pension to move £20,000 out of the main pension so you have £80,000 still in the main scheme and £20,000 placed into a Drawdown scheme running alongside.

From this Drawdown scheme of £20,000 you can take the 25% tax free PCLS and use this £5000 as "income" - plus, depending on your other income and your personal tax allowance, you can then take a portion of the £15,000 in the Drawdown plan as true Income which will be subject to income tax - but if you keep this income (plus any other earned income) below your personal tax allowance then this income will be tax free as well.

This is known a Phasing Pension Benefits or Staggered Vesting. It is highly tax efficient because rather than accessing ALL your Tax Free PCLS and then having to figure out where to put it - you slice it over many years to give you tax free "income".

It does depend on you personal circumstances tho' - if you have debts then using your Tax Free PCLS to clear those debts is undoubtedly a strategy that MUST be considered.

Last edited by Darcydog; 18th May 2017 at 06:31..
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Old 18th May 2017, 08:19   #20
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It seems Darcydog has the relevant knowledge. As a former IFA (retired after 30+ years) I agree with his comments, particularly about getting professional advice. (Being retired, I have no vested interest in saying this!)

But look at the value of prof advice, not the cost, because compared to the size if your fund and the - hopefully - many years you will be using/receiving it the actual £.s.d falls into the realms of insignificance.

One point you might have missed is Darcydog's mention of Trusts. You should explore this too, and not only for the pension.

Now read my sig........
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