lump sum payments

[stevenshm]

Does anyone know how the lump sums will be affected under the new pension?

[RobertT]

You will still be able to take a lump sum from both your NRA60 and NRA65 pensions in the same way as now. But obviously your NRA65 will be based on only 8 years service(2010-2018), so your actual lump sum and pension are likely to be less than the ‘estimated figure at 65’ on your statement.

You will be able to take a guaranteed 25% of the value of your DC pot as a tax free lump sum with the rest being treated as income.
Although there actually a number of different options you can take with a DC pot , this gives more info: https://www.moneyadviceservice.org.uk/e ... on-schemes" onclick="window.open(this.href);return false;

[stevenshm]

thank you Robert

[heapsy]

Assuming the DC scheme does come in to force, would I be able to take it as one lump sum? I know I would have to pay tax on everything over the first 25%. The reason I ask, is because I think I would probably leave RM at 60. If I left the DC scheme where it was until then, with no further contributions, I would have just over 9 years of contributions so it is unlikely to be over say, £20k at best.
Also, would RM allow us to link the current NRA65 pension to the DC scheme, as they do with the current AVC arrangement, allowing us to take the DC element as the lump sum? Many thanks for your thoughts.

[RobertT]

Assuming the DC scheme does come in to force, would I be able to take it as one lump sum? I know I would have to pay tax on everything over the first 25%. The reason I ask, is because I think I would probably leave RM at 60. If I left the DC scheme where it was until then, with no further contributions, I would have just over 9 years of contributions so it is unlikely to be over say, £20k at best.

There does seem to be an anomaly in the ‘pension review booklet’ where it says the new DC arrangement could be the existing RMDCP or a new section of the RMPP, and there is no real explanation as to what the latter actually means.

But I would expect current law to apply to the DC pot, so you can take it as cash if you want to with the first 25% being tax free and the rest being treated as income and so potentially taxable, depending on circumstances. You could also draw it down over a period of time to try and minimise the tax payable.

Assuming you’re full time and paying in 6% along with RM’s 10% I would expect contributions based on current basic pay, totalling around £31,000 during the course of 9 years. That includes tax relief the effect of PSE but obviously doesn’t include any investment growth.

Also, would RM allow us to link the current NRA65 pension to the DC scheme, as they do with the current AVC arrangement, allowing us to take the DC element as the lump sum? Many thanks for your thoughts.

I think there are cases where other companies have done something similar, but the proposals are that the DC scheme will be a standalone arrangement in the same way as if you had another DC pension from a previous employer or had set one up yourself. So no it will not be connected to the RMPP in any way.

[stephen500]

Does anyone know how the lump sums will be affected under the new pension?

I expect and hope to be able to take min or max lump sums from both the RMS taken over by the government and the DB scheme section B. I was told in a phone call that that would still be the case. I may decide not to go into the new DC scheme and either go else where or save the money weekly for 3 years till I retire.

[RobertT]

Does anyone know how the lump sums will be affected under the new pension?

I expect and hope to be able to take min or max lump sums from both the RMS taken over by the government and the DB scheme section B. I was told in a phone call that that would still be the case. I may decide not to go into the new DC scheme and either go else where or save the money weekly for 3 years till I retire.

Why would you want to give up the contributions off RM?
As the new scheme is defined contribution you may be able to take it all free of tax, although not necessarily all at once. Based on the basic wage of £412 p/w and 10% off RM you’d be missing out on around £6,400 over 3 years.

[stephen500]

Does anyone know how the lump sums will be affected under the new pension?

I expect and hope to be able to take min or max lump sums from both the RMS taken over by the government and the DB scheme section B. I was told in a phone call that that would still be the case. I may decide not to go into the new DC scheme and either go else where or save the money weekly for 3 years till I retire.

Why would you want to give up the contributions off RM?
As the new scheme is defined contribution you may be able to take it all free of tax, although not necessarily all at once. Based on the basic wage of £412 p/w and 10% off RM you’d be missing out on around £6,400 over 3 years.

Thanks, any idea how that would pan out for the 3 years in terms of lump sum and yearly pension. On the whole lot it seems confusing. I currently have pensionable allowances of £27000. Incl ex Phg full night allowance of around £5000 pa. Yet notes on examples say it does not include allowances we will have up to 2018. So going forward from 2018 I have £22,000 pensionable allowances and pre 2018, £27,000. I am expecting, taking my Nra 60 and NRA 65 at 60 (Nra 65 reduced by 25%, although I think they have taken this reduction away in the 60 examples in the red booklet) to have a pension of around £10,000 and combined MAX (not min) lump sums of around £67,000.

[RobertT]

Thanks, any idea how that would pan out for the 3 years in terms of lump sum and yearly pension.

For a rough idea and based on you also paying in your 6% of just basic pay, the overall amount of contributions would actually be about £10,300. That would give you a pension of less than £300 per year, assuming you buy an annuity offering similar benefits to the RMPP, so spouses pension and increasing by inflation. If you wanted to take a tax free lump sum, that would obviously be about £2,500 or so and therefore the pension would reduce to only about £200 per year.

There are other annuity options available, which might give you more income, but they will not necessarily provide the inflationary increases & spouses pension the RMPP gives you.

On the whole lot it seems confusing. I currently have pensionable allowances of £27000. Incl ex Phg full night allowance of around £5000 pa. Yet notes on examples say it does not include allowances we will have up to 2018. So going forward from 2018 I have £22,000 pensionable allowances and pre 2018, £27,000. I am expecting, taking my Nra 60 and NRA 65 at 60 (Nra 65 reduced by 25%, although I think they have taken this reduction away in the 60 examples in the red booklet) to have a pension of around £10,000 and combined MAX (not min) lump sums of around £67,000.

Assuming a RMPP pension figure of £10k per year and assuming a personal tax allowance(PTA) of the current £11k per year, with no other income, you would have unused PTA of £1k per year. So the annuity option above would keep you well within that limit. Although the PTA is going to increase to £11,500 in April 2017 and the chancellor has ‘pledged’ to increase again to £12,500 by 2020.

If you were to use your DC pot under the new rules introduced in 2015, you would not have to purchase an annuity. Instead you could drawdown your money over a period of time with either the first 25% being tax free or 25% of each withdrawal being tax free. Either way you should be able to take most if not all of your DC pot tax free between the ages of 60 & state pension age, assuming you have no other income.

The alternative is to save from your own net pay, so you wouldn’t benefit from tax relief, salary sacrifice(PSE) or RM’s contributions. Therefore you would have to put in a lot more just to keep pace with those benefits. For example a 6% weekly contribution of £412(basic pay) is around £25, but with tax relief & PSE it’s effectively only costing you £17.

So in summary the choices would be:

1) A very small amount of pension per year for life.
2) An even smaller pension for life plus a modest lump sum.
3) A pot of money to dip into taking advantage of ‘freebies’ along the way to, I would suggest, increase your income between 60 & SPA.
4) A much smaller pot of money funded solely by yourself.


In my opinion option 3 would give you the better deal - it certainly would in my case! Because although you won’t be getting an income for life from your DC pot it will perhaps be more useful until the state pension kicks in.

I hope that helps and makes sense.

[heapsy]

Assuming the DC scheme does come in to force, would I be able to take it as one lump sum? I know I would have to pay tax on everything over the first 25%. The reason I ask, is because I think I would probably leave RM at 60. If I left the DC scheme where it was until then, with no further contributions, I would have just over 9 years of contributions so it is unlikely to be over say, £20k at best.

There does seem to be an anomaly in the ‘pension review booklet’ where it says the new DC arrangement could be the existing RMDCP or a new section of the RMPP, and there is no real explanation as to what the latter actually means.

But I would expect current law to apply to the DC pot, so you can take it as cash if you want to with the first 25% being tax free and the rest being treated as income and so potentially taxable, depending on circumstances. You could also draw it down over a period of time to try and minimise the tax payable.

Assuming you’re full time and paying in 6% along with RM’s 10% I would expect contributions based on current basic pay, totalling around £31,000 during the course of 9 years. That includes tax relief the effect of PSE but obviously doesn’t include any investment growth.

Also, would RM allow us to link the current NRA65 pension to the DC scheme, as they do with the current AVC arrangement, allowing us to take the DC element as the lump sum? Many thanks for your thoughts.

I think there are cases where other companies have done something similar, but the proposals are that the DC scheme will be a standalone arrangement in the same way as if you had another DC pension from a previous employer or had set one up yourself. So no it will not be connected to the RMPP in any way.

Thinking about this situation I came up with the following. Take the 8 years of the NRA65 pension as a pension, at 65. If you then took the DC scheme as a lump sum, you would get 25% tax free. You could pay AVCs to boost this. The remaining funds would be taxed, at the moment, this would be at 20%. Then you would be left with the rest as cash. Not a perfect solution, but it does do away with the need to take an annuity, which, based on little more than 9 years, (assuming I left at 60) wouldn't be massive. Also, you have to consider the very low annuity rates which will remain, I believe. I've already started a stocks and shares ISA and this I expect to be around £60k when I reach 60. Hope this gives people a few ideas. I know there wouldn't be any tax relief, but there also wouldn't be the pension regulation that dictates we can only take 25% tax free. Forgot to mention, I think my NRA65 pension is currently based on a pot of only £8k at the mo.