Pension 25% lump sum

[alreadyinuse100]

I want to take a lump sum from my pension towards building work. I know you can take 25% tax free, but I have three valuations- transfer, current and terminal. I'm hoping the 25% applies to the transfer (larger) amount. Am I correct?

What sort of pension is it?

Defined benefit schemes have rules about how much tax free cash can be taken.

Transfer value higher than current value... makes me wonder if it is a defined benefit scheme. Is it?

nannynick - yes it is.

You will need to read the scheme rules with regard to how much tax free cash you are able to take at pension commencement.

Defined Benefit schemes are different from each other, so no way to know exactly what is possible without the scheme rules.

Your pension provider may have an online system which gives you an estimate of what pension you get based on how much tax free cash you take.

I have a defined benefit ( ‘final salary’) scheme and discovered that I was unable to take the 25% unless I transferred or started taking my pension. As I’m not quite ready to retire yet I decided to leave it fir now as the defined benefit aspect seems much more secure in the longer term rather than transferring to a personal pension type scheme

OP, are you, or about to be, State Pension Age?

Thanks for the replies. I can see I'm going to have to get on the phone for more information. Was hoping to take the 25% and leave the rest where it is for a while without drawing pension from it.

Jam, I'm actually 2 yrs past sate pension age and have recently started taking my state pension. Still working 3 days a week.

I’m pretty sure you won’t be able to do that. You need to take the pension.

Lump sums from DB pensions are calculated using commutation factors set by the scheme actuary. You’ll need to request a retirement quote to get an accurate figure.

As stated above, all DB schemes differ. In mine, you had to take the lump sum at the same time as starting the monthly pension payments, no sooner and no later.
You should have a load of documents available to you with scheme rules which should explain, or many are online (but make sure it is the exact right scheme).

If you take 25% in one lump, that's it. If you take part, say 12.5% tax free, and the rest out of the taxed share then you still have some tax free to withdraw, which hopefully will continue to grow, which may mean you get more money out tax free in the long run. Also, you have to watch your tax limits so you don't end up having to draw more of the taxable part that takes your total income into a higher tax bracket, so you pay say 40% instead of 20%.

You won't be able to take a lump sum from a DB scheme and not draw the pension at the same time (the lump sum is even called "Pension Commencement Lump Sum", or PCLS, and has to be at the time the pension commences).

You might be able to transfer your DB pension to a DC scheme and access the money more flexibly, but that carries a number of other issues with it - not least the fact that you won't have a DB pension any more, but just a DC pot of money to manage instead. You also might need IFA advice to transfer.

I'd first speak to your DB pension administration team about it, and then an IFA if you want to pursue not just drawing your DB pension.

Double check that your DB scheme increases if you don’t draw it. For example, many teachers are caught out as they don’t take their pension at 60 but it doesn’t increase in value. They essentially ’loose’ significant amounts of income. Other schemes will increase if you take it later as the state pension does.

Update - I've spoken to them on the phone (half an hour) and I'll be taking 25% of the transfer amount and then buying an annuity (type yet to be confirmed). Have filled in some forms online and am awaiting further details.

Is your pension CETV less than £30,000? If it is a DB and more than this, you will have to take independent advice which can be costly. Transferring out of a DB pension is something to really think about.

That doesn't sound like a DB scheme at all OP.
Are you certain it is the right move, long term?
Might you share some more details of the scheme commitments and amounts?

I agree with pp to be careful here - that sounds like you will be in effect ‘taking your pension’ as well as the 25% tax free . If that’s what you want to do then all well and good though. But you will likely lose some of the long term benefits

Definitely doesn't sound like a DB scheme.... can you check what it's called?

Take your pension is my advice, lump sum and monthly payment.