Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    tocsin
    Can I cash in my pension?
    • #1
    • 26th Aug 11, 4:15 PM
    Can I cash in my pension? 26th Aug 11 at 4:15 PM
    Can I cash in my pension?

    First, the background:

    A pension scheme is a tax deferred savings vehicle that allows for the tax-free accumulation of a fund for retirement. Like many tax-free arrangements, they have legal rules attached to them. In the case of pensions, these rules firmly dictate the age, circumstances, and method by which the fund can be drawn. More specifically, these rules (with very few exceptions) mean that the fund cannot be drawn until age 55, and, even then, not entirely as cash.

    So, can I cash my pension before 55?

    For the majority of people, the answer is no. The only possible way to access your pension before this is if you have to retire due to serious ill health. There are also a few pension schemes (e.g. for specific groups like professional footballers or the armed forces, or there may be a previous right to pension from age 50 in the scheme rules) that do allow it - you should read your pension scheme T&Cs.

    But there are companies offering to cash in my pension now...

    These companies are flouting the regulations and should be avoided. You have to transfer your pension to the company involved, so the returns are almost guaranteed to be non-existent or even negative and the fees for the transfer will be steep. Added to that, HMRC will likely charge you 55% of the value of your loan in tax at some point (probably long after the loan has been spent). And, you still have to pay back the loan! A thread like this one shows what could happen (added 23/11/2012).

    So when can I cash in my pension?

    You can usually take your pension from age of 55. You can normally choose to take up to 25% of your pension pot tax free, sometimes more depending on the scheme. The rest of your pension can be used in a number of ways, such as buying an annuity.

    Some pensions will have penalties for taking it this early and require you to take it at a certain age, such as final salary pension schemes. These schemes may also have complicated rules relating to Guaranteed Minimum Pension (GMP) that restrict the amount of cash available.

    If your overall pension pot (so the total of all your pensions), add up to less than 18k or 1% of your life time allowance, you can take it all as cash and 25% will be tax free (i.e 75% will be taxed at your marginal rate of tax). There may be pension schemes wound up that also have similar rules applied.

    However, you should plan to have more than this amount, otherwise you will be living very poorly during retirement.

    Why should I bother putting money into a pension?

    Although pensions have the above restrictions, they also have their benefits. A lot of companies offer to put money into your pension pot, which is essentially free money for your retirement.

    You also get tax relief on your contributions. So if you want to put in 100, you'll only actually see 80 taken out of your pay packet for 20% tax payers, and 60 for 40% tax payers.

    How much should I put into my pension?

    The answer is basically - you get out what you put in. Martin Lewis has a small guideline that you should be putting half your age as a % of your gross salary. So if you start pension saving at 20 you should aim to put 10% of your gross salary away - this can include company contributions.

    There are many pension calculators out there, however this one makes it clear what you could get at retirement - however, remember it's a prediction and isn't guaranteed.
    Last edited by tocsin; 23-11-2012 at 4:00 PM.
Page 6
  • Gettingeven
    [QUOTE=atush;52667735]

    So, as I said, if you don't want to rent a room, or get an extra job you will have to cut your outgoings. QUOTE]

    And yet, you still disagree that the third option is a good one - ie. take my transfer value, take the tax-free cash, pay off all my loans, and leave the remaining fund invested in a SIPP until I retire at 65/66.

    Instead of reading the predictable replies, I would rather hear from people who did what I wish I could do.
  • atush
    Yes, I still think stealing from tomorrow to pay for today is a bad idea. Esp if you don't cut costs as in 5 years you would be back in debt again.

    And anyone who did what you want to do, probably regrets it now and won't be found here. it is obv you want someone to justify your decision but I think no one will. Good luck anyway.
  • jamesd
    GettingEven, you might consider insolvency if your debts are too high to manage. IVA would probably be sufficient. Alternatively use 0% credit card deals to cut the ongoing cost.
  • Gettingeven
    Yes, I still think stealing from tomorrow to pay for today is a bad idea. Esp if you don't cut costs as in 5 years you would be back in debt again.

    And anyone who did what you want to do, probably regrets it now and won't be found here. it is obv you want someone to justify your decision but I think no one will. Good luck anyway.
    Originally posted by atush
    Crikey, I'm nowhere near insolvency!

    However....let's take that a little further, shall we?

    You would say that preserving a final salary pension at all costs is the thing to do? You mean, at the expense of someone's credit history, their dignity, their well-being, their status NOW? You think that just to have extra income in 10 year's time justifies 10 years of uncertainty, financial instability and worry, just so one can shop at M&S instead of Aldi when one is retired and elderly?

    Interesting proposition.

    Personally, I think that all the IFAs who were quite happy to sign off such transfers in the past are running scared now of the regulator, regardless.

    I have a high ATR. I am happy to take risk. I see the current economic situation in Europe as being untenable and there will be further large falls on the stock markets and a collapse in bonds, which is the next big bubble. Capital is flying away to the far east and living standards are collapsing here in the UK, if you hadn't noticed already? My wife has had a .78p pay rise in the last 3 years, and my own pay is 350 pm less than it was 3 years ago after an enforced job move.

    So why shouldn't I access my TFC, invest the remaining fund where I see fit (emerging market funds, in the main, via collectives, perhaps a litle gold) and take my own risks.
    Last edited by Gettingeven; 28-04-2012 at 3:07 PM.
  • Linton
    .....
    So why shouldn't I access my TFC, invest the remaining fund where I see fit (emerging market funds, in the main, via collectives, perhaps a litle gold) and take my own risks.
    Originally posted by Gettingeven
    Because such an action has to be signed off by someone who can take financial responsibility to cover the possibility that you may sue the insurance company that sold you the replacement pension should the transfer prove not to have been in your best interests. eg if your investments fail and/or you lose your job leaving you with insufficient provision for your old age.

    Since in most cases transfer out of a final salary scheme is financially disadvantageous it's unlikely that anyone will take the risk of your situation being different.

    There have been many cases of people demanding recompense when they have made foolish investment decisions. The government, mainly via the FSA, has responded by providing safeguards. These of necessity restrict what you can be allowed to do.
  • Gettingeven
    Because such an action has to be signed off by someone who can take financial responsibility to cover the possibility that you may sue the insurance company that sold you the replacement pension should the transfer prove not to have been in your best interests. eg if your investments fail and/or you lose your job leaving you with insufficient provision for your old age.

    Since in most cases transfer out of a final salary scheme is financially disadvantageous it's unlikely that anyone will take the risk of your situation being different.

    There have been many cases of people demanding recompense when they have made foolish investment decisions. The government, mainly via the FSA, has responded by providing safeguards. These of necessity restrict what you can be allowed to do.
    Originally posted by Linton
    You're still not answering the question, though, are you?

    Put it like this, then....would it be advisable for someone to access their transfer funds if the tax-free cash helped to repay all debts which therefore prevented repossession of their home, or would it be sensible to become insolvent, have their property repossessed, lose their job, just so that they can have a final salary pension in the future.

    i think we both know the answer to that one. don't we?

    More and more company pension schemes are going to encounter difficulties in the future. I think that this is inevitable. The recent announcement by the Government allowing pension actuaries to assume that gilt yields will rise in the future is a sign of desperation in my view. This will serve to cut transfer values now! But it wont solve the problem, as I believe that we are in for a long period of very low interest rates and rock bottom gilt yields. Pension scheme deficits will increase, in reality, and more will seek the protection of the PPF.
  • jamesd
    would it be advisable for someone to access their transfer funds if the tax-free cash helped to repay all debts which therefore prevented repossession of their home, or would it be sensible to become insolvent, have their property repossessed, lose their job, just so that they can have a final salary pension in the future.
    Originally posted by Gettingeven
    It would not be advisable. The correct initial solution in that case is likely to be insolvency in the form of an IVA to reduce or eliminate the debts and allow for continuation of the mortgage payments using the income that is no longer being used to pay the other debts. Possibly in conjunction with a benefit payment to cover mortgage interest and/or some forbearance from the mortgage lender if the income drop appears temporary.

    For those where that still can't solve the problem then bankruptcy and including the likely mortgage balance shortfall in the insolvency so that it is also eliminated is an option. Those with significant equity may be able to avoid this by downsizing or relocating to a place that is affordable within their means instead.

    For those in work where insolvency isn't acceptable a debt management plan is an alternative. Though such people should have had the financial prudence to avoid getting into the mess in the first place, knowing their limited options.

    After insolvency to get rid of the debts an IFA might be willing to sign off on a sufficient transfer to deal with any mortgage issues. Maybe earlier if insolvency would disallow the person from working in their normal field of work.

    i think we both know the answer to that one. don't we?
    Originally posted by Gettingeven
    We know different answers. Renting shouldn't be demonised, it's entirely acceptable. The pension rules are written to block people from mortgaging their future in retirement to deal with pre-retirement imprudence or misfortune, which are better handled via insolvency and/or the benefits systems. Or by financial prudence to build up sufficient reserves so things like loss of a job won't cause hardships.

    The recent announcement by the Government allowing pension actuaries to assume that gilt yields will rise in the future is a sign of desperation in my view.
    Originally posted by Gettingeven
    Gilt yields are at near-historic lows due to fiscal easing, which has reduced them from a normal 4.5% or so to 2.75% or so. It is not reasonable to assume that fiscal easing will continue indefinitely so the announcement is entirely sensible and avoids short term silliness based on exceptional circumstances.
  • Gettingeven
    Gilt yields are at near-historic lows due to fiscal easing, which has reduced them from a normal 4.5% or so to 2.75% or so. It is not reasonable to assume that fiscal easing will continue indefinitely so the announcement is entirely sensible and avoids short term silliness based on exceptional circumstances.
    Originally posted by jamesd
    I don't agree. I think we are heading for many, many years of Japan style low interest rates, little or no economic growth and the huge risk of deflation. In fact, we are already there! Real income is being squeezed, asset values, so overpriced for so many years, are falling back to reality, and the prospect, which is the truly firghtening aspect to all of this, is that @ 80% of the government's austerity programme hasn't hit the economy yet.

    In my view, house prices have further to fall, and are only propped up by low interest rates.

    Read up on Japan's economic performance since the early 1990s. Interest rates have been hovering around 0% since 1994!
  • Proxy
    I don't agree. I think we are heading for many, many years of Japan style low interest rates, little or no economic growth and the huge risk of deflation. In fact, we are already there! Real income is being squeezed, asset values, so overpriced for so many years, are falling back to reality, and the prospect, which is the truly firghtening aspect to all of this, is that @ 80% of the government's austerity programme hasn't hit the economy yet.

    In my view, house prices have further to fall, and are only propped up by low interest rates.

    Read up on Japan's economic performance since the early 1990s. Interest rates have been hovering around 0% since 1994!
    Originally posted by Gettingeven
    Whilst gilt yields are influenced by interest rates, they are not the only factor. QE depressed yields more than any other thing. And there is no reason to believe that QE can continue indefinitely.
  • Linton
    I don't agree. I think we are heading for many, many years of Japan style low interest rates, little or no economic growth and the huge risk of deflation. In fact, we are already there! Real income is being squeezed, asset values, so overpriced for so many years, are falling back to reality, and the prospect, which is the truly firghtening aspect to all of this, is that @ 80% of the government's austerity programme hasn't hit the economy yet.

    In my view, house prices have further to fall, and are only propped up by low interest rates.

    Read up on Japan's economic performance since the early 1990s. Interest rates have been hovering around 0% since 1994!
    Originally posted by Gettingeven
    If you are right doesnt that make your Final Salary pension even more valuable?? There is the increased likelihood that your job wont exist to put new money into your pension and the returns on your investments wont come anywhere near sufficient to provide for you in your old age.
  • Gettingeven
    If you are right doesnt that make your Final Salary pension even more valuable?? There is the increased likelihood that your job wont exist to put new money into your pension and the returns on your investments wont come anywhere near sufficient to provide for you in your old age.
    Originally posted by Linton
    Possibly. Possibly not. I mean, who knows? My parents both died early 70s. In common with many elderly people, the years before they died were spent in and out of hospital with poor health. Very little opportunity to spend any money at all, had they had any!

    I admit to having spent far too much time in the pub, and a smoker too, for the last 30 odd years (although I gave up the demon weed 2 years ago).

    You seem to assume that people live a life that fits neatly into a grand financial plan, when most people's lives aren't like that. I've never read such nonsense in my life, all this talk about filing for IVAs, selling and renting, etc etc, when there is a large asset available that could leave me debt free without touching that part of it that will provide the pension anyway.

    I have never suggested taking the pension as well, just the tax-free cash. There is no reason that I couldn't grow the remaining fund to provide a substantial pension at 65. As I say - who knows?

    Anyway, it all depends on how big the transfer value is.
  • cambsno
    So, just to clarify, the ads I have seen online offering to buy your pension should be avoided.

    I am under 40 and would like to cash in a pension worth approx - 25k
  • RichandJ
    So, just to clarify, the ads I have seen online offering to buy your pension should be avoided.

    I am under 40 and would like to cash in a pension worth approx - 25k
    Originally posted by cambsno
    Like the plague.

    You can't. Unless you're terminally ill.
    It only takes one tree to make a thousand matches, it only takes one match to burn a thousand trees. As well, the cars are all passing me, bright lights are flashing me.

    Johnny Was. Once.

    Why did he think "systolic" ?
  • cambsno
    Thanks, it would have been great if I could have done but I was sceptical of the claims made
  • Stone Circle
    as this keeps cropping up as a question was kindly put together by tocsin

    made a "sticky" so it stays on the front page
    Originally posted by Browntoa
    It's most probably a very stupid question but what do you mean by "sticky?"
  • jem16
    It's most probably a very stupid question but what do you mean by "sticky?"
    Originally posted by Stone Circle
    It means the thread is stuck, as in pinned, to the top of the board so it never moves down. Therefore it should always be seen easily.
  • Glenelg
    Hi Guys, new to forum (be gentle!) as I've been looking at cashing in my pension and after advice. I'm 58 and my private pension matures when I'm 60 in 14months time. I'm self-employed P/T at the moment and business is GRIM so was looking at taking pension early. My Q's - Do I have a right to get my pension early? Or do I have to have a medical reason? Its a Local Government Pension Scheme. I found the forum whilst looking at "pension loans" and I'm glad I did !!! Thanks
    Last edited by Glenelg; 10-05-2012 at 1:14 PM.
  • jem16
    Do I have a right to get my pension early?
    Originally posted by Glenelg
    You have a right to request your pension early. It may or may not be granted. It will be actuarially reduced if you take it early.

    More information here;

    http://www.lgps.org.uk/lge/core/page.do?pageId=102450
  • Liverpool1981c
    Im a serving police officer and am part of the 30 year pension scheme, i have 10 years service and due to the changes and working conditions i am looking to leave the job. The pension is looking to change in 2015 and i for one will not be signing on to a new scheme. My query is can i cash in my 10 year police pension or transfer it to a scheme i can. I am under 50 years of age also.
  • jem16
    The pension is looking to change in 2015 and i for one will not be signing on to a new scheme.
    Originally posted by Liverpool1981c
    Very foolish decision - probably the worst decision you can make finacially.

    My query is can i cash in my 10 year police pension
    No you can't.

    or transfer it to a scheme i can.
    Fortunately no you can't as it would be an extremely bad decision.
Welcome to our new Forum!

Our aim's to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

6,013Posts Today

11,358Users online

Martin's Twitter