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Lump sum question

Discussion in 'Retirement' started by Beauherne1990, Feb 23, 2020.

  1. Beauherne1990

    Beauherne1990 New commenter

    What does it mean by 'automatic' lump sum as opposed to 'optional'?? I know you can reduce your pension & get a larger lump sum, but the figure for the 'automatic' is larger so I am confused!
  2. diddydave

    diddydave Established commenter

    In the final salary scheme there is an automatic lump sum that is equivalent to 3 times the annual pension (the final salary part only).

    The optional lump sum is an amount you can get by giving up part of your pension (up to 25% of it). It is 12 times what is given up. So if you had an annual pension of £12,000 you could give up a maximum of £3000, taking the pension down to £9000 a year and in return get an extra £36,000 lump sum.
    Beauherne1990 likes this.
  3. Brianthedog

    Brianthedog Occasional commenter

    I reduced my pension to £12500 and took an optional lump sum of £36k on top of my automatic lump sum of £44k so got a final lump sum, tax free, of £80k. You can't reduce your automatic lump sum to increase your pension.
    Paying off my outstanding mortgage cost about £18k and saved me around £1k in interest, plus reduced my monthly outgoings by £630. I spent another £10k on much needed new windows and roof. Now I have a house that's practically been rebuilt so will, hopefully not need any big amounts spending on it before I pop my clogs (unless I need a stair lift innyears to come ).
    Beauherne1990 likes this.
  4. Bedlam3

    Bedlam3 Star commenter

    @Brianthedog - you have also reduced you annual pension down to your personal tax allowance so no tax to pay which I assume was intentional?

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