Should I take my tax-free lump sum early?

[MillicentFaucet]

I was planning to glide towards retirement from next year but I'm a bit worried that another shake up of pension rules may be on the cards for the autumn budget,
specifically around lump sums. I know it was floated last time and didn't happen but I think it it's on the cards eventually.
I've asked the provider of an old DB pension for my figures & think it'll be about £70k.
Am I being paranoid or should I take the cash before RR helps herself to a slice of it?

You could take it and put 20k in an ISA (each year). That would at least spread the risk. The.government might go after ISAs too.

I think I would in your scenario. But I'm not there yet! Plus the investment market is a mess due to this war so it may not be a good time.

I would definitely take it before rules change. Stick it in an ISA if you don’t need it

That's my thinking, I don't need it or have any plans to spend it but I'd rather invest it myself for a few years than trust this government not to move the goalposts...

Exactly.

You’d think it would be political suicide to go after lump sums. Surely a large proportion of 45-67 year olds would never vote for them again. It’s a huge part of most people’s pension planning.

Just be aware that I think DC future pension contributions will be capped at 10k going forward once you do this.

I think they'll start with private sector pensions, obviously the country would grind to a halt if they did this to the public sector

Awful advice. Any changes made are going to have a long lead time (eg ISA changes) so why take money out of a pension based on speculation? ISAs are only earning around 4%, most pensions are giving a much better rate of return. Plus the more you leave your pension to grow, the bigger your tax free lump sum will eventually be.

It's a DB pension and I'm only taking it a year earlier than planned. I wouldn't be putting it into a cash ISA, I intend to keep it in s&s for at least 5 years as I have other income.
One of my ISAs has grown 92% in 16 months 😁

Even if there is a reduction in the amount of TFC, laws will need changing and implementing.

It’s also unlikely to reduce to a level below what you have - that would just kill off pension savings completely.

Your probably right but Osborne's pension reforms are only 10 years old, they're not carved in stone and it's not unheard of for autumn announcements to be implemented the following spring.

I don’t understand this.
You Can invest in exactly the same funds/stocks/gilts/ bonds/cash etc in an ISA than you can in your pension.

If the OP did withdraw her lump sum and put £20k a year into an ISA she could chose the same or other investments as the pension. With no tax issues on pulling out the money from the isa/ withdrawing dividends etc,

You’d think…

but all governments have played around with pensions so much over the last 20 years. I don’t trust this one to not limit the lump sum or tax it somehow/

@tramtracks but you can only put 20k a year in an ISA. Op is planning on taking 70k - where's she gonna put the other 50k where the interest isn't going to get taxed?
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I just think it's a bit silly to act on speculation. Just my opinion.

I would take it and put it in an ISA

What’s worse OP , taking it and putting it in an ISA / premium bonds or an other place or risking not being able to take it or at least a reduction in the amount .

That accounts for 20k. What about the remaining 50k?

Well clearly you can either drip feed it or put most of it somewhere else . It’s not hard to deduce that surely .

As they have shown with their other taxation policies, they don't care about next time. Tax the productive and call it fairness.

Won't the lump sum be reduced if you take it a year early?
If it's a DB pension then the value is guaranteed and not at risk of falling in value due to the stock market. The 25% rules will not be changed without a lead in time - if you are talking about the next year or two and this hasn't been announced already it won't impact you.

Are you affected by the 55-57 transition rules? I'm really struggling to understand why else you'd consider withdrawing early.

Thats not the point though, is it?

Is it still tax efficient to remove money from a pension to then drip feed over 4 years into an ISA? What would you do with the remainder while it was outside the ISA?

One thing that might impact whether you do something immediately or in a few weeks, is that you'll probably find your pension pot has reduced in recent days - mine was £70,400 Monday morning, yesterday is was £68,438.

Can anyone shed light on what rules could change around pensions. I'm in a similar position to OP, and was thinking about taking my lump sum within a year.

What’s the commutation rate, op?

No one can predict what's going to happen. That's the point. And whatever does happen, there will be a long lead time.

It really is crazy that, at a time when the government is trying to encourage people to invest, they've also created so much uncertainty around pensions that people are desperate to get their money out of the pension wrapper and into who knows what.