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Pension & Debt
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wanna-be-mortgage-free_2
Posts: 679 Forumite
Hi there
I know this is a long shot and I know the answer is going to be no but with the wealth of people on this board thought I would ask anyway:p
I have around £18k worth of debt, I have a pension with a current value of £35,000 which accumulated when I was in a decent job. Am I right in assuming I cannot cash in or surrender such a plan? I'm not old enough to take the 25% cash free amount. I just think it's annoying that I can't afford to pay in to this plan nor can I use the money held in it to pay off my debts. If I could pay them off I could then start paying in to a pension again.
I know this is a long shot and I know the answer is going to be no but with the wealth of people on this board thought I would ask anyway:p
I have around £18k worth of debt, I have a pension with a current value of £35,000 which accumulated when I was in a decent job. Am I right in assuming I cannot cash in or surrender such a plan? I'm not old enough to take the 25% cash free amount. I just think it's annoying that I can't afford to pay in to this plan nor can I use the money held in it to pay off my debts. If I could pay them off I could then start paying in to a pension again.
DFW Nerd no: 149 

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Comments
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Tying up money in a pension is not always right for everyone. My FiL did not live long enough to get any money back and his widdow will need to live until she is 85+ before they break even."A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
Ride hard or stay home :iloveyou:0 -
You're right in your assumption - no you can't cash it in.0
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as cheskey says you can't get any cash out until you are 50 or 55 (from 2010) and then 25%.
however, it may cheer you up to reflect that some of that 35,000 is tax relief and maybe some is company contribution.... so it didn't actually cost you 35,0000 -
Sadly there is no way around it. Your best plan would be to speak with a financial advisor to handle your debt another route as annoying as it is that you have money you can not get to. If you are able to repay the debt then you should take look into ISA so that you can still have access to your money after putting it towards retirement. Just in case you fall into another trap like this one. For now all you can hope for is someone that can help you come up with financial plan to get out of this slump. Good luck!0
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Sadly there is no way around it. Your best plan would be to speak with a financial advisor to handle your debt another route as annoying as it is that you have money you can not get to. If you are able to repay the debt then you should take look into ISA so that you can still have access to your money after putting it towards retirement. Just in case you fall into another trap like this one. For now all you can hope for is someone that can help you come up with financial plan to get out of this slump. Good luck!
Thanks for this. Yeah should have taken an ISA out instead but alas hindsight is a wonderful thing;) Anyway, have decided to open a Sipp and make the money work for me . If I can't have it now I might as well try to make as much money as possible for retirement!DFW Nerd no: 1490 -
wanna-be-mortgage-free wrote: »Thanks for this. Yeah should have taken an ISA out instead but alas hindsight is a wonderful thing;) Anyway, have decided to open a Sipp and make the money work for me . If I can't have it now I might as well try to make as much money as possible for retirement!
I'm 80% sure that once you get past your current debt problems you'll be glad that the rules prevented you from being able to cash in your pension. I'm 100% sure that once you retire and start receiving your pension you'll be glad the rules prevented you from cashing it in.
If you had an ISA then you would have used all of the retirement money and would probably not have the time remaining to be able to rebuild this money back to its previous level (or anywhere close). You'd then be looking forward to spending your 'golden years' in poverty. This is exactly the reason that I don't think ISAs should be used in isolation to provide a retirement income.
If you're struggling financially when you're young and healthy you have options - working overtime, working two jobs, living off beans on toast and making other short-term cut backs. If you're struggling financially when you're old and infirm then you just don't have these options.
Rather than bemoan the fact you can't get your hands on this money, be happy that while you may struggle through your working life, at least you have a half-decent retirement to look forward to.Tying up money in a pension is not always right for everyone. My FiL did not live long enough to get any money back and his widdow will need to live until she is 85+ before they break even.
I thought all contributions were returned to the beneficiary or to the deceased estate if they die before claiming their pension?Mortgage Free in 3 Years (Apr 2007 / Currently / Δ Difference)
[strike]● Interest Only Pt: £36,924.12 / £ - - - - 1.00 / Δ £36,923.12[/strike] - Paid off! Yay!!
● Home Extension: £48,468.07 / £44,435.42 / Δ £4032.65
● Repayment Part: £64,331.11 / £59,877.15 / Δ £4453.96
Total Mortgage Debt: £149,723.30 / £104,313.57 / Δ £45,409.730 -
Dithering_Dad wrote: »I thought all contributions were returned to the beneficiary or to the deceased estate if they die before claiming their pension?"A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
Ride hard or stay home :iloveyou:0 -
Do not know where you got that idea? His was a contributory company occupational pension scheme, where the rules dictate that the widdow gets half of her spouses pension.
I got it from The Pensions Advisory Service's info on death_benefits (copied below) and also from reading my own various company pension T&Cs over the years.
Death of an Active Member
The benefits payable are usually divided into three separate elements – a 'Death in Service” lump sum, a return of the member's own contributions and a survivor's pension. These three elements do not automatically all feature in every pension scheme.
Most schemes provide for a Death in Service benefit, similar to a life assurance policy. A lump sum is paid to a beneficiary on the death of a member. The value of the lump sum is normally calculated as a multiple of the member's final earnings. The benefit can be paid free of tax if it is less than the member's available lifetime allowance.
The benefit is normally only available to active members but some schemes do extend the benefit to other members, in some circumstances.
The member, usually when he/she first joins the scheme, will complete a form indicating whom he/she would like the trustees to pay the lump sum to. However, the trustees have full discretion over the payment of the lump sum so can choose to pay it to whoever they feel is most deserving (i.e. someone financially dependent on the member).
Other benefits may be provided depending on the scheme type. In salary-related schemes it is common for a refund of the member's own contributions to be paid. In addition, the rules sometimes provide for a spouse's pension of up to two-thirds of the member's potential pension at Normal Retirement Date (NRD). All schemes that provide a pension for widows must also provide pensions for widowers. Registered civil partners must be treated the same as married couples.
Some schemes will provide additional pensions for dependent children.
In money purchase schemes, normally only a refund of the accumulated fund is paid. The most a money purchase scheme can pay is the value of uncrystallised funds in the plan when the member or policyholder dies (but can include growth on those funds up to the point the sum is actually paid out). Uncrystallised funds means funds that have not as yet been used to provide that member with a benefit under the scheme.
If the scheme is contracted-out, a pension from the accumulated Protected Rights pot may be payable to a surviving spouse or civil partner.
Death of a deferred member
In salary-related schemes, normally the only benefit is a refund of the member's own contributions. If the scheme is contracted-out, the Guaranteed Minimum Pension (GMP) is payable to a surviving spouse or civil partner. Some schemes though, do provide full widows' benefits of up to two-thirds of the member's preserved pension.
Any lump sum payment can be paid free of tax if it is less than the member's available lifetime allowance.
In money purchase schemes, normally only a refund of the accumulated fund is paid. The most a money purchase scheme can pay is the value of uncrystallised funds in the plan when the member or policyholder dies (but can include growth on those funds up to the point the sum is actually paid out). Uncrystallised funds means funds that have not as yet been used to provide that member with a benefit under the scheme.
If the scheme is contracted-out, a pension from the accumulated Protected Rights pot may be payable to a surviving spouse or civil partner.
Are you sure the chap died before claiming his pension, because the "half widow's pension" is usually a benefit paid once the main pension recipient has passed away?
Actually, reading the TPAS material, it looks like your widow friend has been treated quite well by the pension scheme. If the chap dies in his fifties and his widow is of a similar age, they could be paying a guaranteed pension to her for anything upto a further 40 years. Also, you usually find that the employee contribution to a FS scheme is very small compared to the employer's contribution, so the widow could 'break even' much earlier than 85+, if 'breaking even' means the return of just the deceased's actual pension contributions.Mortgage Free in 3 Years (Apr 2007 / Currently / Δ Difference)
[strike]● Interest Only Pt: £36,924.12 / £ - - - - 1.00 / Δ £36,923.12[/strike] - Paid off! Yay!!
● Home Extension: £48,468.07 / £44,435.42 / Δ £4032.65
● Repayment Part: £64,331.11 / £59,877.15 / Δ £4453.96
Total Mortgage Debt: £149,723.30 / £104,313.57 / Δ £45,409.730 -
Chances are the guy died with a preserved pension so very much favored by board members who think final salary schemes are the bees knees. In which case 85 could well be an optimistic age, over 100 is much more likely especially taking inflation into account. As for the GMP element of it remember thats the equivalent of contacting out. The employer provided that in exchange for paying lower national insurance contributions.
Such is the case with final salary schemes, they are the employers scheme which you are just a member. Odds are members will not get any lump sum on death as they wont be contributing and if they have a spouse the employer makes a tidy profit unless death comes soon after joining. Without a spouse he's laughing all the way to the bank as his liability runs to a mear refund of members contributions with effectively no more than current account interest.
The solution is to look to transfer out of such crap schemes the day you leave their employ, or better still dont join and argue to get the employers contributions paid into your own personal pension plan. By law it's a part of your pay.0 -
Thanks retired IFA,
You are probably right, my estimate makes no allowance for inflation."A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
Ride hard or stay home :iloveyou:0
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