Can I "cash-in" my personal pension somehow ?

245

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  • Dark_Pariah
    Dark_Pariah Posts: 22 Forumite
    dunstonh wrote: »
    The Govt gives tax relief on contributions and tax free growth as well as the pension being outside of the estate for IHT purposes (as well as other protections) to allow people to put money aside for retirement. It isnt there for people to take out early because they want to pay for another holiday in Spain or their short term problems. The taxpayer isnt there to fund mistakes of the individual in their own spending.

    Quite right! The way you need to look at a pension fund in this regard is that Her Majesty's Revenue and Customs (HMRC) make special allowances so that people can save now, to secure an income when they can no longer work so it is a "gift" from HMRC not a personal right and that since pensions first began (in their statutory form) the HMRC have made it clear that there are conditions to their "generous" treatment of pension funds - one being that it is almost impossible to take the fund back as a cash lump sum, - Pensions are not the same as a high interest bank account.

    I can sympathise with d405, what is the use of having a large sum locked away until you are older, when you need money now to buy neccessities? An associate of mine explained (in relation to paying into AVCs) like this:

    You have less money now, and you are still going, thanks to your salary. When you are no longer able to receive a salary, you will be able to appreciate your foresight in making sure that your pension fund was made sufficiently large than your standard of living does not diminish that greatly. :o
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    Quite right! The way you need to look at a pension fund in this regard is that Her Majesty's Revenue and Customs (HMRC) make special allowances so that people can save now, to secure an income when they can no longer work so it is a "gift" from HMRC not a personal right and that since pensions first began (in their statutory form) the HMRC have made it clear that there are conditions to their "generous" treatment of pension funds - one being that it is almost impossible to take the fund back as a cash lump sum


    It is not a gift.

    75% of the tax is simply deferred, you pay it back after you retire.Only the 25% cash lump sum can be described as a " gift from HMRC". And in return for that, you lose control of your capital forever and until very recently were forced to lock yourself into a poor retirement income via an annuity.

    Many people look this gift horse in the mouth for good reason.

    Unless an employer's contribution is available and you are a higher rate taxpayer, ISAs should be preferred to pensions. Pensions can be accessed later in life if appropriate without loss.
    Trying to keep it simple...;)
  • averageguy11
    averageguy11 Posts: 405
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    Totally agree ED...slightly pompous post from dark pariah
  • ISA's may not survive, the whole concept of tax free saving other than pensions is a fairly new thing and should be considered as a tempory idea instigated by politicans out for a vote winner.

    The pension tax exemps status however has been with us for many many decades and there is not one political party or politician that is not in favour of retaining said status.

    For many currently a stocks and shares ISA can be built up and still be put into a pension but only since the laws passed in '06. No doubt in the future they will change again perhaps back to a maximum contribution far lower than now and without carry back.

    The odds are way way more in favour that come retirement in 10 20 30 years from now the pension route will have provided far more.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    ISAs and PEPs have been around for more than 20 years now, are popular, and the Govt has committed to keeping them for the long term.

    The fact is that a pension is not really affordable for many young people because it is so expensive to buy a home. They are also unattractive because of the annuity problem.Hence the rush into buy to let as an alternative retirement investment.

    Pensions have their place but in future they are likely to be less important in the overall scheme of asset accumulation IMHO.
    Trying to keep it simple...;)
  • IMHO That's a first eh Ed?

    Does this sudden humility mean we can one day see you posting a "Sorry, I got it wrong." somewhere? ;D
  • Dark_Pariah
    Dark_Pariah Posts: 22 Forumite
    Totally agree ED...slightly pompous post from dark pariah
    I am sorry - In retrospect - very pompous of me.:lipsrseal

    I suspect that the HMRC would say that to their mind, the treatment of taxation of pensions is a gift - until 1921, contributions and increases in fund values within Pension Funds were subject to tax - although (going back to the orignal question) depending on the rules of the Scheme, you could take all your money out of the scheme as a lump sum as a result.

    I would not be surprised if you all correct me, but I think that Employer Funded Retirement Benefit Schemes (EFRBS) are a modern restatement of the pre 1921 rules. If you are not registered with HMRC, then you pay the tax on any contributions you or your employer makes at the time, increases in fund values are taxed and the pension is taxed as well (in some cases plus National Insurance Contributions).
  • chesky369
    chesky369 Posts: 2,590 Forumite
    I don't see why the pension withdrawal law should be changed, simply because some people don't understand what a pension is meant to be. If you want to be able access your money, start a saving scheme.

    And yes, I'm probably being pompous too.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    chesky369 wrote: »
    I don't see why the pension withdrawal law should be changed, simply because some people don't understand what a pension is meant to be. If you want to be able access your money, start a saving scheme.

    The options available now make rational savings and investment choices possible. No problem with that.

    But up until the late 80s that wasn't the case. There were no PEPS or ISAs. Company pensions were often compulsory - a condition of employment. Some people were forced to save, others weren't.

    The advent of private pensions saw a large amount of misselling - and it looks pretty clear even now that many people still aren't being told at the point of sale that once money gets put into a pension, it can't be taken it out.

    Thus I wouldn't hold my breath waiting for a fall in complaints about money being trapped in pensions - especially when you look at what some of the insurance companies have done with the money over the years.... :rolleyes:
    Trying to keep it simple...;)
  • Dark_Pariah
    Dark_Pariah Posts: 22 Forumite
    EdInvestor wrote: »
    The advent of private pensions saw a large amount of misselling - and it looks pretty clear even now that many people still aren't being told at the point of sale that once money gets put into a pension, it can't be taken it out.

    Thus I wouldn't hold my breath waiting for a fall in complaints about money being trapped in pensions - especially when you look at what some of the insurance companies have done with the money over the years.... :rolleyes:

    EdInestor, I think you (with respect) have put your finger on one of the problems with pensions.

    Everyone "knows" that a pension is "a good thing", but historically many have been given poor advice or have had no option but to pay into a pension. This will not improve when Personal Accounts are introduced - I would say that the advice that Financial Advisers now give is the best it has ever been, but as pensions become more complicated (as they always do) there will be a large number of people who will find that they are caught between a rock and a hard place. They cannot take their pension funds out (PAs will not allow transfers in or out until 2017 at the earliest as I understand it) and will be left with a string of small personal accounts which cost more to adminsiter than the individual's funds and will eventually result in a retirement income which is insufficient to the needs of the individual. :confused:
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