Question about pension lump sum

[Moulin Yarns]

My sister in law has a pension projection for next year and she is looking to go for a larger lump sum and smaller pension. Am I right in thinking that anything above the 25% will be taxed?

[Santa Cruz]

My sister in law has a pension projection for next year and she is looking to go for a larger lump sum and smaller pension. Am I right in thinking that anything above the 25% will be taxed?


https://www.gov.uk/tax-on-pension/tax-free

[Sir David Gray]

My sister in law has a pension projection for next year and she is looking to go for a larger lump sum and smaller pension. Am I right in thinking that anything above the 25% will be taxed?

If it's a defined contribution scheme then there will either be the option of full ufpls or small pots.

With both options the tax free amount is 25% and the other 75% will either be taxed at emergency rate (full ufpls) or basic rate (small pots).

There are some older schemes where the pre 6th April 2006 tax free allowance was more than 25% but the scheme will be able to confirm if that applies or not. It's more than likely that the tax free allowance will be 25%.

With an annuity the maximum tax free allowance is 25% and the monthly pension is subject to tax.

[grunt]

If it's a defined contribution scheme then there will either be the option of full ufpls or small pots.

With both options the tax free amount is 25% and the other 75% will either be taxed at emergency rate (full ufpls) or basic rate (small pots).

There are some older schemes where the pre 6th April 2006 tax free allowance was more than 25% but the scheme will be able to confirm if that applies or not. It's more than likely that the tax free allowance will be 25%.

With an annuity the maximum tax free allowance is 25% and the monthly pension is subject to tax.
Are you an IFA?

[Sir David Gray]

Are you an IFA?

No but I do deal with pensions so have a fair amount of knowledge of them.

[StevieC]

If it's a defined contribution scheme then there will either be the option of full ufpls or small pots.

With both options the tax free amount is 25% and the other 75% will either be taxed at emergency rate (full ufpls) or basic rate (small pots).

There are some older schemes where the pre 6th April 2006 tax free allowance was more than 25% but the scheme will be able to confirm if that applies or not. It's more than likely that the tax free allowance will be 25%.

With an annuity the maximum tax free allowance is 25% and the monthly pension is subject to tax.

What would be your advice with regards to a pension pot post 55?
I like the idea of the 25% tax free lump sum just now, but happy to leave the rest sitting for a later date.

[Moulin Yarns]

If it's a defined contribution scheme then there will either be the option of full ufpls or small pots.

With both options the tax free amount is 25% and the other 75% will either be taxed at emergency rate (full ufpls) or basic rate (small pots).

There are some older schemes where the pre 6th April 2006 tax free allowance was more than 25% but the scheme will be able to confirm if that applies or not. It's more than likely that the tax free allowance will be 25%.

With an annuity the maximum tax free allowance is 25% and the monthly pension is subject to tax.

NHS England, 2 different schemes, 2008 and 2015.

https://www.nhsbsa.nhs.uk/nhs-pensions

2 illustrations for each, which I've assumed can be mixed, giving 4 different pension options, She is attracted to the highest lump sum, but I see that as bringing a tax bill in the first year of nearly £12 grand and the lowest annual pension. She is very money orientated, and I fear she will take the cash and fritter it away!! She is visiting in a weeks time so I want to have the figures to persuade her to go for, at least, a middle ground.

[Sir David Gray]

What would be your advice with regards to a pension pot post 55?
I like the idea of the 25% tax free lump sum just now, but happy to leave the rest sitting for a later date.

I'm not a financial adviser and therefore not qualified to give actual advice. However in the two pensions jobs I've had I do need to make sure people are aware of the features of their pension. Assuming your pension does allow flexible drawdown, you should keep in mind that the other money remains invested so the value of it could go up as well as down.

Also if you are paying into another pension, accessing your pension by flexible drawdown will trigger the Money Purchase Annual Allowance (MPAA) meaning the amount you can contribute to another pension drops down to £4k per year.

Also check carefully for any safeguarded benefits/guarantees that your pension may have and consider what you may be giving up by accessing your savings by drawdown before deciding if it's the best thing for you.

If you're unsure you can find a financial adviser via www.unbiased.co.uk

Sorry I'm not sure if that's been very helpful with not being able to give advice but hopefully it's given some things to think about!

[Sir David Gray]

NHS England, 2 different schemes, 2008 and 2015.

https://www.nhsbsa.nhs.uk/nhs-pensions

2 illustrations for each, which I've assumed can be mixed, giving 4 different pension options, She is attracted to the highest lump sum, but I see that as bringing a tax bill in the first year of nearly £12 grand and the lowest annual pension. She is very money orientated, and I fear she will take the cash and fritter it away!! She is visiting in a weeks time so I want to have the figures to persuade her to go for, at least, a middle ground.

Ah ok so that will be a defined benefits pension then if it's NHS so the options may be more limited.

It's really whatever suits each person's circumstances. Some people want the instant cash but do need to think about the fact that it's to last for the rest of their life.

[Moulin Yarns]

Ah ok so that will be a defined benefits pension then if it's NHS so the options may be more limited.

It's really whatever suits each person's circumstances. Some people want the instant cash but do need to think about the fact that it's to last for the rest of their life.

Cheers for that. I will try to emphasis the long term income.

[Jack]

I was in a scheme very similar to the NHS one. When I retired early, 7 years ago, I maxed out my lump sum and it wasn't taxed.

Your SIL would be best chatting to the administrators of the NHS English scheme.

I used to work for the Scottish NHS scheme but before 2015 so I'm not sure how that affects things.

[wookie70]

Ah ok so that will be a defined benefits pension then if it's NHS so the options may be more limited.

It's really whatever suits each person's circumstances. Some people want the instant cash but do need to think about the fact that it's to last for the rest of their life.

Fairly sure my final salary lump sum in the civil service is tax free and you can buy extra lump sum for £12 per £1 of pension. That is is the old scheme before the Tories unlawfully withdrew it to be replaced by one without lump sum costing us fortunes more.

Well worth looking to make sure that second scheme was lawful and there wasn't a court case. 2015 was the date ours changed and we now have the choice of what scheme we want to be in at the point of retiral(difficult to make the choice as the Tories privatised the pension admin and it has been a total shambles ever since) The Judges, Firemen and Civil Servants all won cases, not sure how widespread the Tory law breaking was.

[Moulin Yarns]

I was in a scheme very similar to the NHS one. When I retired early, 7 years ago, I maxed out my lump sum and it wasn't taxed.

Your SIL would be best chatting to the administrators of the NHS English scheme.

I used to work for the Scottish NHS scheme but before 2015 so I'm not sure how that affects things.

Thanks.

[Keyser Sauzee]

Slightly off topic, I had a pension with RBS when I worked there which I estimate to be around 5k, is there any way I can access this early as it’s a pretty small amount in terms of a pension fund?

[Moulin Yarns]

Slightly off topic, I had a pension with RBS when I worked there which I estimate to be around 5k, is there any way I can access this early as it’s a pretty small amount in terms of a pension fund?

Look at the government website linked above.

I think that from age 55 you can access the pension, and as it is below £10k you can get it as a lump sum.

[Keyser Sauzee]

Look at the government website linked above.

I think that from age 55 you can access the pension, and as it is below £10k you can get it as a lump sum.

Thanks, still a good while to wait then

[Sir David Gray]

Slightly off topic, I had a pension with RBS when I worked there which I estimate to be around 5k, is there any way I can access this early as it’s a pretty small amount in terms of a pension fund?

You can't access it unless you're 55, except under the grounds of ill health.

If you're 55+ and it's a defined contributions scheme (most schemes are these days) then you'll be able to access a fund of that amount under the small pots rule since it's under £10k although you'll probably only be able to do that three times, if you have other pensions also below £10k.

You can still transfer your pension into another pension before age 55.

[gbhibby]

Slightly off topic, I had a pension with RBS when I worked there which I estimate to be around 5k, is there any way I can access this early as it’s a pretty small amount in terms of a pension fund?
Get a valuation as deferred pension will have increased in value you might be surprised.