Potential Tax free Lump Sum

[RobertT]

my lump sum illustration 4 years ago retiring at 60 was 56,000, my illustration i recieved today was 29,000, i dont understand pensions but surely i cant have lost that much

The illustration you got 4 years ago was an estimate based on you working and the RMPP still being open to future accrual, until your 65th birthday.

It closed 6 months ago, therefore your pension is based on what you accrued up until then.

[collierrow]

Does anybody know how much the pension rose by this year.

Reason for asking is I had a forecast last year at 55 of NRA 60 and NRA 65 and I want to know how much it went up by in September.

Also if I intend to take my NRA 60 when Im 56 I assume I add 5% to the total.

EG Annual Pension £5000

5% extra for extra year £5250.

£5250 x 3% (example of inflation) = £5406

Is that correct ?

announced today pension goes up by 2.2 percent from april next year. figure on ons website

[heapsy]

Does anybody know how much the pension rose by this year.

Reason for asking is I had a forecast last year at 55 of NRA 60 and NRA 65 and I want to know how much it went up by in September.

Also if I intend to take my NRA 60 when Im 56 I assume I add 5% to the total.

EG Annual Pension £5000

5% extra for extra year £5250.

£5250 x 3% (example of inflation) = £5406

Is that correct ?

announced today pension goes up by 2.2 percent from april next year. figure on ons website

If you are a Section C member then the one to look at is the RPI figure. Currently 3.3%?

[stephen500]

Just want to make sure Im doing my sums properly.

Take your NRA 60 pension amount and x 20 (assuming taking no lump sum)

Take NRA 65 pension amount and x 20 (assuming taking no lump sum)

Take total amount of cash in new pension scheme.

Take total amount of funds in AVC

Add all 4 together and you get 25% of the total amount.

Is that correct.

Thanks

By 'new pension scheme' I assume you mean the DBCBS?

If so, that sounds about right.
Also bear in mind if you've got any excess AVC' money after you've taken your 25% lump sum at the time of taking your NRA60, you can defer it to take with your NRA65. Therefore possibly avoiding any tax liability, depending on the amounts involved.

Whether we can then use anything left over from our AVC's/DBCBS, if there is any, to improve the lump sum from the CDC/DBLSS, is another thing altogether.

Using old pension updates I have, this time 2013, if I looked at my max lump sum, it appears to be around 28%.
Here NRA 60 total pension (FS and Csdb till 2010) was shown as £9124 and max lump sum as £51693 (with reduced pension of £7754). If I take Nra total pension £9124 and times it by 20 and then find 28% of that, then it gives me £51,094, which is as close as I can get. Not taking account of the DBCBS which I have no idea how to include in the max lump sum calculations! which for me is currently £5400 per year.

[RobertT]

Using old pension updates I have, this time 2013, if I looked at my max lump sum, it appears to be around 28%.
Here NRA 60 total pension (FS and Csdb till 2010) was shown as £9124 and max lump sum as £51693 (with reduced pension of £7754). If I take Nra total pension £9124 and times it by 20 and then find 28% of that, then it gives me £51,094, which is as close as I can get. Not taking account of the DBCBS which I have no idea how to include in the max lump sum calculations! which for me is currently £5400 per year.

Yes there does seem to be an anomaly with your figures and there is with mine as well, although not as pronounced as yours!

The way I work it out is:

9,124 x 20 / 4 = 45,620.

Or

£7,754 x 20 + 51,693 / 4 = 51,693

To factor in the DBCBS just add it to the total before you divide by 4.

You also have to factor in that your annual statements are just guides – the figures quoted aren't written in stone!

In practice when you come to take your pension, the amount you get will be worked out based on your exact circumstances. For example it's usually done as the best in year in the last 3, or the best 3 consecutive years in the last 10.
Inflation and any changes in pensionable pay will also be taken into account.
See the notes on your annual statement and your plan guide for more info.

[Hawkey99]

How exactly do they get to their figure Robert.

Best year out of the last 3. Then what is the rest of the calculation please.

An example would bw great.

Thanks

[stephen500]

my lump sum illustration 4 years ago retiring at 60 was 56,000, my illustration i recieved today was 29,000, i dont understand pensions but surely i cant have lost that much

The illustration you got 4 years ago was an estimate based on you working and the RMPP still being open to future accrual, until your 65th birthday.

It closed 6 months ago, therefore your pension is based on what you accrued up until then.

I assume you are talking about your lump sum. They are showing your min lump sum. They are not showing your max lump sum which according to the booklet and helpline you can still take, which should be considerably bigger than your min lump sum, although you will have to give up some of your pension , which I calculate is around 15% deduction for section B.

[stephen500]

my lump sum illustration 4 years ago retiring at 60 was 56,000, my illustration i recieved today was 29,000, i dont understand pensions but surely i cant have lost that much

The illustration you got 4 years ago was an estimate based on you working and the RMPP still being open to future accrual, until your 65th birthday.

It closed 6 months ago, therefore your pension is based on what you accrued up until then.

I assume you are talking about your lump sum. They are showing your min lump sum. They are not showing your max lump sum which according to the booklet and helpline you can still take, which should be considerably bigger than your min lump sum, although you will have to give up some of your pension , which I calculate is around 15% deduction. for section B.

My min lumpsum for section B without Csdb is around £29,000 and I calculate my max lump sum without Csdb or dbcbs as around £55,000. So I don't think we have any thing to worry about . It says you can still take max lump sum. As said you were just looking at min lump sum.

[RobertT]

How exactly do they get to their figure Robert.

Best year out of the last 3. Then what is the rest of the calculation please.

An example would bw great.

Thanks

The best year out of the last 3 only applies to the final salary(pre 2008) part of your pension, but is based on your pensionable pay when you take your benefits or leave RM.

For example if you left in April 2018 and are in section C:

Your last 3 years of pensionable pay before 2018 were £14k, £16k & £15k so they would work out how much pension you get based on £16k.

You build up 1/60th of your pensionable pay for each year of service, so if you had built up 20 years of service up to 31/3/08, you'd have a pension of 20/60ths of your pensionable pay or £5,333.

To check if your figures are correct:

Divide 'your pensionable salary' figures by your 'service up to 31/3/08' figures on your annual statement(page 6), that should equal your 'final salary pension at 31/3/18' on page 3.

[stephen500]

Using old pension updates I have, this time 2013, if I looked at my max lump sum, it appears to be around 28%.
Here NRA 60 total pension (FS and Csdb till 2010) was shown as £9124 and max lump sum as £51693 (with reduced pension of £7754). If I take Nra total pension £9124 and times it by 20 and then find 28% of that, then it gives me £51,094, which is as close as I can get. Not taking account of the DBCBS which I have no idea how to include in the max lump sum calculations! which for me is currently £5400 per year.

Yes there does seem to be an anomaly with your figures and there is with mine as well, although not as pronounced as yours!

The way I work it out is:

9,124 x 20 / 4 = 45,620.

Or

£7,754 x 20 + 51,693 / 4 = 51,693

To factor in the DBCBS just add it to the total before you divide by 4.

You also have to factor in that your annual statements are just guides – the figures quoted aren't written in stone!

In practice when you come to take your pension, the amount you get will be worked out based on your exact circumstances. For example it's usually done as the best in year in the last 3, or the best 3 consecutive years in the last 10.
Inflation and any changes in pensionable pay will also be taken into account.
See the notes on your annual statement and your plan guide for more info.

Dear Robert, I am a bit confused about the DBCBS and how the cash is taken.
If my final salary pension was £8296 (after 15% deduction for max lump sum) and my CSDB pension (post 2010) was £2449 (after 16% deduction for max lump sum) and my Final salary lump sum was £55313 and CSDB lump sum £16224 and I received £5400 for each year DBCBS for three years making £16500.
£8296 + £2449 x 20 + £71537 (combined FS and Csdb lump sums) + £16500 (DBCBS) = £302937 pot. 25% max tax free lump sum = £75734 (now here is the question My FS and CSDB lump sums come to £71537. Which means I can only take £4197 tax free from my £16500 DBCBS (if it runs for three years). What happens to £12303 left in the DBCBS pot that I cannot take tax free. Do I still get to take that as cash, but pay 20% tax on it (£12303) or even possibly 40% if that takes me into the higher tax bracket for that year, or is it spread in pension payments and if so, what is the formula for this? (confused)

[RobertT]

You're in section B so you get a lump sum as standard, which is typically worked out as 3 times your pension. You now also have the DBCBS from April 2018.

If your standard lump sum is lower than 25%, then you can use the DBCBS money to top it up to 25%, and then anything left over would be taxable. According to the info we received earlier in the year, you could also transfer it out for drawdown or annuity purchase. Details here.

But as you're in section B, you also have the choice(assuming nothing has changed that I haven't heard about, as it's not mentioned in the latest plan guide) to commute some of your standard lump sum into more index linked pension. Meaning you have a bigger pension and you can use more or all of your DBCBS cash to fund the tax free lump sum.

So there's potentially no need to reduce your pension to get the maximum lump sums from your NRA60 & NRA65 pensions, as you seem to be suggesting? Depending on exact figures, you could actually get a bigger pension and the maximum lump sum!

From posts on these forums, the commutation factor for section C members to give up some pension for a lump sum, seems to be around 1:22, meaning for each £1 they give up in yearly pension, they get £22 in tax free cash.

To be honest I don't know if the commutation rate for section B members to do the opposite, and it may well change depending on what the schemes actuaries decide. But if you use the same formula, but the other way round, it should be in the right ballpark.

I'm sure the pensions dept. will give you the details about your options at the time.

[stephen500]

You're in section B so you get a lump sum as standard, which is typically worked out as 3 times your pension. You now also have the DBCBS from April 2018.

If your standard lump sum is lower than 25%, then you can use the DBCBS money to top it up to 25%, and then anything left over would be taxable. According to the info we received earlier in the year, you could also transfer it out for drawdown or annuity purchase. Details here.

But as you're in section B, you also have the choice(assuming nothing has changed that I haven't heard about, as it's not mentioned in the latest plan guide) to commute some of your standard lump sum into more index linked pension. Meaning you have a bigger pension and you can use more or all of your DBCBS cash to fund the tax free lump sum.

So there's potentially no need to reduce your pension to get the maximum lump sums from your NRA60 & NRA65 pensions, as you seem to be suggesting? Depending on exact figures, you could actually get a bigger pension and the maximum lump sum!

From posts on these forums, the commutation factor for section C members to give up some pension for a lump sum, seems to be around 1:22, meaning for each £1 they give up in yearly pension, they get £22 in tax free cash.

To be honest I don't know if the commutation rate for section B members to do the opposite, and it may well change depending on what the schemes actuaries decide. But if you use the same formula, but the other way round, it should be in the right ballpark.

I'm sure the pensions dept. will give you the details about your options at the time.

Thanks.
Could I if I chose, take the rest of the £12000 left in the DBCBS as cash and simply pay tax, whether at 20% or 40% (although it may be more sensible to increase the pension and in doing so at 1:22 appears to give me another £2640 pension per year, if that is correct I think I will do that, especially as it would give my wife a bigger pension on my death)This assumes the DBCBS continues for another 2 years after Apr 2019. Life will get a little more complicated if the CDC scheme comes in!

[RobertT]

Thanks.
Could I if I chose, take the rest of the £12000 left in the DBCBS as cash and simply pay tax, whether at 20% or 40% (although it may be more sensible to increase the pension and in doing so at 1:22 appears to give me another £2640 pension per year, if that is correct I think I will do that, especially as it would give my wife a bigger pension on my death)This assumes the DBCBS continues for another 2 years after Apr 2019. Life will get a little more complicated if the CDC scheme comes in!

Based on taking your pensions at their NRA's, and assuming your DBCBS is worth £16,500. The best course of action in my opinion, would be to:

At 60: Take your NRA60. Commute £16,500 of your standard lump sum into more pension, then use your DBCBS to replace that money. Giving you a bigger pension for life, a bigger spouses pension and the same lump sum.

At 65: Take your NRA65 with your pension and standard lump sum.

Using a commutation rate of 22:1, your additional pension based on a DBCBS pot of £16,500 would be £750 per year. Which doesn't sound like much but it's around twice as much as you'd get if you were buying an annuity with similar benefits.

[stephen500]

Thanks.
Could I if I chose, take the rest of the £12000 left in the DBCBS as cash and simply pay tax, whether at 20% or 40% (although it may be more sensible to increase the pension and in doing so at 1:22 appears to give me another £2640 pension per year, if that is correct I think I will do that, especially as it would give my wife a bigger pension on my death)This assumes the DBCBS continues for another 2 years after Apr 2019. Life will get a little more complicated if the CDC scheme comes in!

Based on taking your pensions at their NRA's, and assuming your DBCBS is worth £16,500. The best course of action in my opinion, would be to:

At 60: Take your NRA60. Commute £16,500 of your standard lump sum into more pension, then use your DBCBS to replace that money. Giving you a bigger pension for life, a bigger spouses pension and the same lump sum.

At 65: Take your NRA65 with your pension and standard lump sum.

Using a commutation rate of 22:1, your additional pension based on a DBCBS pot of £16,500 would be £750 per year. Which doesn't sound like much but it's around twice as much as you'd get if you were buying an annuity.

Or can I take the excess £12000 and simply pay tax on it? And at what rate , 20 or 40%?

[stephen500]

Thanks.
Could I if I chose, take the rest of the £12000 left in the DBCBS as cash and simply pay tax, whether at 20% or 40% (although it may be more sensible to increase the pension and in doing so at 1:22 appears to give me another £2640 pension per year, if that is correct I think I will do that, especially as it would give my wife a bigger pension on my death)This assumes the DBCBS continues for another 2 years after Apr 2019. Life will get a little more complicated if the CDC scheme comes in!

Based on taking your pensions at their NRA's, and assuming your DBCBS is worth £16,500. The best course of action in my opinion, would be to:

At 60: Take your NRA60. Commute £16,500 of your standard lump sum into more pension, then use your DBCBS to replace that money. Giving you a bigger pension for life, a bigger spouses pension and the same lump sum.

At 65: Take your NRA65 with your pension and standard lump sum.

Using a commutation rate of 22:1, your additional pension based on a DBCBS pot of £16,500 would be £750 per year. Which doesn't sound like much but it's around twice as much as you'd get if you were buying an annuity.

Or can I take the excess £12000 and simply pay tax on it? And at what rate , 20 or 40%?

At present I am planning to take NRA 60 and 65 at 60.