Redundancy - waive right or not to tax free lump sum

Monfreid

Hello,

I’m 44 and will be made redundant af the end of January.
I have 2 options, the first one is that I keep my right to get a tax free lump sum from my pension after 50
The second one is the opposite and therefore I will pay 6k less tax on my redundancy.
The current value of the tax free lump sum is 13K and there is 40K in my pension.
My understanding is that I can wait to turn 50 and take 25% of this pension and the remaining will have to be transferred to an ARF so let’s say 30K.
What is my best option here? Take 6k now or wait 5 years and get 13K but then the remaining 30K will be in a ARF that will probably provide close to nothing in income or just transfer those 40K to my new employer’s pension?
Thank you

Squatter

Monfreid wrote: »

I’m 44 and will be made redundant at the end of January.

I have 2 options, the first one is that I keep my right to get a tax free lump sum from my pension after 50

The second one is the opposite and therefore I will pay 6k less tax on my redundancy.

The current value of the tax free lump sum is 13K and there is 40K in my pension.

My understanding is that I can wait to turn 50 and take 25% of this pension and the remaining will have to be transferred to an ARF so let’s say 30K.

What is my best option here?

Take 6k now or wait 5 years and get 13K but then the remaining 30K will be in a ARF that will probably provide close to nothing in income or just transfer those 40K to my new employer’s pension?

Only YOU can decide which is the better option for YOU to chose at this point in time. Strangers can't tell you which is the better option FOR YOU without knowing lots more about you.

For example:

Do you need the cash now? Are you in debt?

Could you use it to pay off some of your mortgage/debts or to buy a car/van or start up a business?

Are you likely to get another job straight away?

What's your domestic situation?

etc. etc.

It it were me, I'd be very slow to draw down 25% of my pension at age 50, unless I desperately needed the funds.

Monfreid

Squatter wrote: »

Only YOU can decide which is the better option for YOU to chose at this point in time. Strangers can't tell you which is the better option FOR YOU without knowing lots more about you.

For example:

Do you need the cash now? Are you in debt?

Could you use it to pay off some of your mortgage/debts or to buy a car/van or start up a business?

Are you likely to get another job straight away?

What's your domestic situation?

etc. etc.

It it were me, I'd be very slow to draw down 25% of my pension at age 50, unless I desperately needed the funds.

Thanks for your reply. I do understand that it is my choice, everybody life circumstances are unique, I was just looking for opinions to confort my decision. My mind is currently set on keeping my right to the lump sum at a later stage. I don’t need the extra money right now and if I do take 25% after I turn 50, it will be to invest the money, not spending it on myself.

Bubbaclaus

Monfreid wrote: »

Thanks, I do understand that it is my choice, everybody life circumstances are unique, I was just looking for opinions to confort my decision. My mind is currently set on keeping my right to the lump sum at a later stage. I don’t need the money right now and if I do take 25% after I turn 50, it will be to invest the money, not spending it on myself.

You'd only be keeping your right to potentially having that option open in the future.

There's no guarantee that option will exist by the time retirement comes around.

msmx5

Monfreid wrote: »

Thanks for your reply. I do understand that it is my choice, everybody life circumstances are unique, I was just looking for opinions to confort my decision. My mind is currently set on keeping my right to the lump sum at a later stage. I don’t need the extra money right now and if I do take 25% after I turn 50, it will be to invest the money, not spending it on myself.

Bear in mind that if you surrender irrevocably your option to commute part of your pension for a tax free lump sum in the future that it only affects the pension from the current employment you are being made redundant from.

If you get another job with a similar pension then you could in theory take a tax free lump sum from its fund in the future.

Speaking for myself & without knowing your full situation I would be inclined NOT to take a future tax free lump sum from the 40K (current value) pension fund (remember reducing your fund at age 50+ will greatly reduce any pension at retirement). I would instead choose to maximise any tax concessions now and take the larger tax free lump sum from your redundancy payment. Rules regarding tax free lump sums could change in the future (a bird in the hand etc.). You also, if you wish, and if circumstances permit use the extra money to make AVCs to your next employments pension.

Monfreid

msmx5 wrote: »

Bear in mind that if you surrender irrevocably your option to commute part of your pension for a tax free lump sum in the future that it only affects the pension from the current employment you are being made redundant from.

If you get another job with a similar pension then you could in theory take a tax free lump sum from its fund in the future.

Speaking for myself & without knowing your full situation I would be inclined NOT to take a future tax free lump sum from the 40K (current value) pension fund (remember reducing your fund at age 50+ will greatly reduce any pension at retirement). I would instead choose to maximise any tax concessions now and take the larger tax free lump sum from your redundancy payment. Rules regarding tax free lump sums could change in the future (a bird in the hand etc.). You also, if you wish, and if circumstances permit use the extra money to make AVCs to your next employments pension.

So maybe the best option in the end is to take those extra 6K now and transfer the 40K to my new employer’s pension and forget the tax free lump sum from those 40K at retirement age to get the highest pension possible...

RUDOLF289

Monfreid wrote: »

So maybe the best option in the end is to take those extra 6K now and transfer the 40K to my new employer’s pension and forget the tax free lump sum from those 40K at retirement age to get the highest pension possible...

Or maybe find an independent financial advisor, or an accountant and get some professional advice. They should be able to provide a complete overview of what your options are and what is the most beneficial taking all your circumstances into consideration.

Cheers,
Rudolf289