Understanding pension quote approaching 55

[oliel]

Hi I've had my pension quotes as follows:

RMPP

age 65 benefit
option 1 - £1503.31 per year, no tax free cash
option 1a - £1503.31 per year, tax free cash from cash balance £10022, left from cash balance £16581

what's the difference between these 2? both suggest i get £1503 per year but with 1a i get the lump sum too what's the downside?

option 2 £1211.00 per year, tax free cash lump sum £8077

im struggling to understand why option 2 pays less per year than option 1 am i missing something here?


my understanding is these figures are quotes for me taking my pension at 55?

[oliel]

meant to say im section c btw.

[RobertT]

Hi I've had my pension quotes as follows:

RMPP

age 65 benefit
option 1 - £1503.31 per year, no tax free cash
option 1a - £1503.31 per year, tax free cash from cash balance £10022, left from cash balance £16581

what's the difference between these 2? both suggest i get £1503 per year but with 1a i get the lump sum too what's the downside?

With option 1, the Cash Balance is treated as a separate thing so you can either take it as a UFPLS(25% tax free) or transfer it out(pending £30k advice rules).
With option 1a, you're using it to fund the tax free cash linked to the pension, with the remainder being paid as a UFPLS.

option 2 £1211.00 per year, tax free cash lump sum £8077

im struggling to understand why option 2 pays less per year than option 1 am i missing something here?

You're giving up some pension to fund that lump sum.
The Cash Balance will then be paid as a UFPLS or transferred out.

my understanding is these figures are quotes for me taking my pension at 55?

If you've asked for a quote, they probably are.


UFPLS – Uncrystalised Funds Pension Lump Sum
Basically it just means the first 25% is tax free and the rest classed as income and taxed accordingly.

Transfers out are only realistically possible if your cash balance is under £30k, due to the costs involved and the unwillingness for IFA's to touch them with a barge pole.

[oliel]

Think i must be thick

If option 1a gives me £1503 pa at 55 and tax free lump sum of £10.022 with remaining cash balance to take at a later date of £16.581 (on which 75% is taxed) why would I go for option 2 that gives me £1211 pa and only a tax free lump sum of £8077 - I feel I'm misunderstanding something?

[roadrunner bill]

Think i must be thick

If option 1a gives me £1503 pa at 55 and tax free lump sum of £10.022 with remaining cash balance to take at a later date of £16.581 (on which 75% is taxed) why would I go for option 2 that gives me £1211 pa and only a tax free lump sum of £8077 - I feel I'm misunderstanding something?

Option 2 gives you a lump sum from your pension. With a reduced annual pension, and you get the full amount of your cash balance.

Option 1a gives you a lump sum from your cash balance and the rest paid as taxed income..

So Option 1a is using you cash balance to fund your lump sum..

Option 2 doesn't do that , hence you get more in lump sums..

[RobertT]

Think i must be thick

If option 1a gives me £1503 pa at 55 and tax free lump sum of £10.022 with remaining cash balance to take at a later date of £16.581 (on which 75% is taxed) why would I go for option 2 that gives me £1211 pa and only a tax free lump sum of £8077 - I feel I'm misunderstanding something?

As I said in my previous reply, with option 2 the Cash Balance is paid out as a UFPLS. Although it would be reduced from it's full value as you're taking it before 65.

Your options in money terms:

Option 1 - £1,503 per year with no lump sum being generated by reducing the pension.
The Cash Balance of £26,603 is then paid out as a UFPLS at the same time, meaning £6,650 will be tax free and the remaining £19,953 will be classed as income and taxed accordingly.
If you assume you pay 20% tax on that, you'll lose £3,990 in tax and the total lump sum you'll have in your pocket is £22,613.

Option 1a - £1,503 per year with no lump sum being generated by reducing the pension.
The Cash Balance is then paying out a tax free lump sum based on the value of that pension figure.
That will be £10,022, with the remaining £16,581 being paid out as a UFPLS. So £4,145 of that will also be tax free and the other £12,436 being classed as income and taxed accordingly.
Again assuming 20% tax, you'll pay £2,487 in tax and get a total lump sum of £24,116 in your pocket.

Option 2 - £1,211 per year with that reduction in pension(compared to options 1&1a), generating a lump sum of £8,077.
The Cash Balance of £26,603 is then paid out as a UFPLS, so for tax purposes that will be treated the same as in option 1, you'll pay £3,990 in tax and in total you'll have a lump sum of £30,690 in your pocket.


Alternatively, you can transfer the whole Cash Balance pot to a personal pension, which gives you slightly different options. There is no option to leave it where it is after taking your Age65 benefits.


*Your pension will be reduced by roughly 5% for each year you take it before NRA, so by taking it at 55 it will see a 50% hit.

*The Cash Balance is also reduced but only by around 1.3% per year. Your most recent annual statement should show it's full current value, which I guestimate to be around £30,500?

*Transfers above a value of £30,000 will need IFA approval, but the transfer value will be based on any early access reductions.

*Income tax is payable at 20% on any income between £12,571 and £50,270 in any one financial year. Any income above that is taxed at 40%. That will include money received from wages and pensions(but not any tax free amounts).

[roadrunner bill]

Sorry.... robert knows a hell of a lot more than me.. so sorry robert...

Im nearly 55.. and for me.... I've seen so many not making it to 65 years of age... and not reaping the benifits in thier retirement years..

So im taking all.mine.... and just enjoying it while I sort of have some good health at the moment..... and still youngish....

There was a director at royal mail who took a 6 figure sum.. when they where cleaning out senior management... not been retired long.... played golf one day... dropped dead.. the following evening.....

[RobertT]

I'm not sure why you're apologising, you said basically the same as me.
I've just put a bit more meat on the bone.

I try to tell people on here what they can and can't do, rather than what they should or shouldn't, although I do have my own opinions.

Ultimately, whether you take your pension early or at NRA, or choose the biggest lump sum over the higher pension, it's a decision based on your own personal circumstances and choices, etc.

[roadrunner bill]

I'm not sure why you're apologising, you said basically the same as me.
I've just put a bit more meat on the bone.

I try to tell people on here what they can and can't do, rather than what they should or shouldn't, although I do have my own opinions.

Ultimately, whether you take your pension early or at NRA, or choose the biggest lump sum over the higher pension, it's a decision based on your own personal circumstances and choices, etc.

[Wullie10]

The confusion starts with the option 2 on the forecast.
From your cash balance . Tax free cash NONE. Leftover benefits from your cash balance NONE. So I think most without help would tick option 1a thinking this is the best for a higher lump sum. While it has been shown its actually option 2.