Converting pension to Tax Free Cash...

[NorthernBoy]

Okay, so I have an avc pot running alongside my main nra60 pension, but when the time comes to draw it, I am in two minds as to whether to take the maximum tax free cash or just what’s in my avc fund.

I was originally going to take the maximum 25% allowed, but I am starting to think I am better taking max pension and a lower lump sum. My thinking being that as my partner has little pension provision of her own, a higher pension on my death will be more beneficial to her.

I know there is no right or wrong answer here as it’s all down to personal circumstances, but I am curious as to what others have done / are planning to do when they take their pension.

Did you take the max lump sum? Do you wish you had took the higher initial pension instead?

Regards NB.

[heapsy]

I'm divorced, so my situation is a bit different. I intend to take the maximum lump sum. Mostly made up from AVCs, probably about two thirds. I intend to use the AVCs as a supplement until 67. The remainder of the lump sum I will take as cash and use for a rainy day fund. I don't intend to take my pensions early. but will access a private pension at 60 and draw down what I can without paying tax. I realize my circumstances are different, but if it helps, then it's all good. Remember to get your other half to check her state pension entitlement. See how close she is to a full pension. Easy to do, and she could top up her entitlement if she is missing some years. In my mums case, she inherited at least some of my dads pension. She only had a very small state pension of her own, and no work or private pensions. Is there any chance she could boost her pensions before she retires, if that's the case?

[NorthernBoy]

“Is there any chance she could boost her pensions before she retires, if that's the case?”

Thanks for the comments. My partner works retail and is paying as much she can into the works dc scheme. We will need to look into paying NI contributions as she only has a few years of state pension earned.

I’ve not ruled out taking the max tax free cash, as it’s still an attractive option.

[tractorboy2]

I don't know if this helps , but according to my options , the widows pension is the same whether you take max lump sum or not.

[Schiff]

“Is there any chance she could boost her pensions before she retires, if that's the case?”

Thanks for the comments. My partner works retail and is paying as much she can into the works dc scheme. We will need to look into paying NI contributions as she only has a few years of state pension earned.

I’ve not ruled out taking the max tax free cash, as it’s still an attractive option.

Using your tax free cash to pay additonal years NIC contributions for your wife/partner is very cost effective to boost her state pension. Note also that lump sum recycling rules only prohibit using your lump sum to make additional pension contributions to a SIPP in your own name. You would certainly be able to use the lump sum to boost your partner's pension pot.

[RobertT]

Personally I've always been a bit greedy and wanted both the maximum pension for the guaranteed index linked and compounded income for life, aswell as the 25% tax free lump sum. Hence why I started to save into AVC''s.

I can see the benefits of using the tax free lump sum to supplement income until state pension age, as it might enable a lot of people to retire earlier than they might have been able to do otherwise. But personally I don't really like the idea of reducing my pension to do that. I would be more inclined to use other savings for that purpose, assuming that's an option.

But each to their own, etc.

Paying voluntary NIC's to increase state pension entitlement is a great thing to do if you're short of qualifying years, as it will only take about 3 years or so to get your money back once you reach state pension age.