Taking pension as lump sum with multiple pensions

rpeck2000 · 15 February 2018 at 12:39PM

My partner and I have about £30k of high interest debts and cannot afford to save for a deposit and probably wouldn't get a mortgage anyway as our credit ratigs suck because things are so tight. We would love to be debt free, and
able to start saving properly for our retirement and to get a deposit together for a house, and to repair our credit ratings. Neither of us currently has particularly great pension provision (mine almost non-existent), but paying so much to basically service the interest on loans and credit cards mean we rarely have anything left over each month to add - and we are often struggking to meet payments in full as I am self employed and have chronic health issues that affect my ability to earn a regular wage. My partner has just turned 56, and is in employment with an excellent workplace pension which we would like to leave untouched and keep paying into.

However he has two old pensions, both DC we think. One contains about £40k and we aren't sure about the other one. The 40k pot doesn't seem to have grown much in years, and the interest rates we pay on our debts are considerably higher than the hit of tax we would pay on taking this pension as a lump sum so we could pay off the debts and start saving into ISA's etc. and my pension. I don't know how we would go about doing it and the more I read on the internet the more confused I get!

Can we just cash out one of his pensions and leave the others as they are?

How do we go about doing so?

Would be so grateful for any advice as am feeling utterly overwhelmed by it all. Thanks

dunstonh · 15 February 2018 at 1:08PM

My partner has just turned 56, and is in employment with an excellent workplace pension which we would like to leave untouched and keep paying into.

But you may not be able to if you take the other pensions as a lump sum. The annual allowance gets reduced to just £4000 (and its adjustable - so could go lower).

The 40k pot doesn't seem to have grown much in years,

Is that because it has safeguarded benefits or your partner how chosen very low risk investments?

Can we just cash out one of his pensions and leave the others as they are?

Potentially yes. Possibly no. The reduction in annual allowance could be a barrier.

It could also create a large tax bill depending on how much he earns.

Remember that with unsecured debts, robbing your retirement to pay these is not the only way.

rpeck2000 · 15 February 2018 at 1:29PM

Remember that with unsecured debts, robbing your retirement to pay these is not the only way

Believe me, we have exhausted every avenue open to us without resorting to bankruptcy which we cannot do as my partner works in insurance so would never get another job if we did!

The annual allowance gets reduced to just £4000 (and its adjustable - so could go lower).

Is that allowance just what he can pay in, or the combined payment as his employers make a large contribution, too? He currently pays in around £4000 a year, but they add a nice chunk on top of that.

I barely manage £100 a year into mine, and so our intention would be to use ISA's and up the contributions to my pension while he continues to pay into his work-based pension once we have paid off the debts.

Is that because it has safeguarded benefits or your partner how chosen very low risk investments?

I don't know! I don't think it was a pension where he had many options to make choices when he took it out, and he barely even thought about it much until we started getting annual statements a couple of years ago.

We are prepared for 75% of it being taxed at higher rate, but that still works out cheaper than the interest we are paying on the debts by a massive margin, and would be a one off this year - not every single year. The amount left would be enough to cover what needs to be paid off to leave us completely debt free. I just feel that unless we do this we will just keep floundering - and the stress of feeling we have nowhere to turn, and the anxieties over possible increased costs of borrowing with future interest rate increases, and not having any leeway to bear that as we currently aren't keepiing up with all our payments as it is adds anxiety making my health issues worse.

Linton · 15 February 2018 at 1:42PM

If you want to take the whole lot out you could always take half out one tax year and the other half the next one.

But the £4K limit is a reduction in the £40K total limit for all payments into a pension so it should also limit employer contributions. So I suggest you consider that aspect very carefully.

See here for further details

If you just take the 25% tax free lump sum the annual allowance wont be affected.

kidmugsy · 15 February 2018 at 3:38PM

rpeck2000 wrote: »

My partner has just turned 56, and is in employment with an excellent workplace pension which we would like to leave untouched and keep paying into.

rpeck2000 wrote: »

He currently pays in around £4000 a year, but they add a nice chunk on top of that.

Let's start with that £4k per annum. Is that the amount he needs to pay in to get the maximum employer contribution, or could he reduce his contribution and still receive the max employer contribution? Does his pension contribution let him avoid some higher rate tax? Does he make the contribution by salary sacrifice?

Next, the mystery third pension. Why don't you know how big it is? How long would it take you to find out? You really need to know how much you could knock of this pestilential debt by taking only the TFLS from the two old pensions.

Lastly: back to the workplace pension. How much capital has he got there at the moment? Would he be allowed to stop contributing for a month or two, remove his TFLS, and then rejoin and start contributing again? That's a matter of the rules - how long would it take him to find the answer?

xylophone · 15 February 2018 at 3:48PM

Find out whether the old pensions are basic DC with no safeguarded benefits.

If so, I wonder would it be possible to transfer the two old pensions into a new consolidated arrangement, take the 25% lump sum and leave the balance invested?

It might be worth looking at a SIPP with HL for this - he might then consider transferring the SIPP to his workplace pension (if it would be accepted) after a year or so, if it were to be more beneficial in terms of charges etc.

rpeck2000 · 15 February 2018 at 4:09PM

Thanks everyone.

Let's start with that £4k per annum. Is that the amount he needs to pay in to get the maximum employer contribution, or could he reduce his contribution and still receive the max employer contribution? Does his pension contribution let him avoid some higher rate tax? Does he make the contribution by salary sacrifice?

Yes, he pays the maximum amount to get the maximum amount from them. He would get much less if he reduced the amount he pays. Yes, it does mean he avoids some higher rate tax. Yes it is done by salary sacrifice.

Next, the mystery third pension. Why don't you know how big it is? How long would it take you to find out? You really need to know how much you could knock of this pestilential debt by taking only the TFLS from the two old pensions.

Probably because we have never received an annual statement from them. Everything was managed online, and he can't remember whether there was or wasn't an external website link or the logins. I am sure if he gave them a call it wouldn't take long to get these things and find out how much is there. He is, sadly, not as pro-active on such things as me, but there is only so much I can do for him!

back to the workplace pension. How much capital has he got there at the moment? Would he be allowed to stop contributing for a month or two, remove his TFLS, and then rejoin and start contributing again? That's a matter of the rules - how long would it take him to find the answer?

He has 2 years worth of contributions, so the amount there currently is minimal - about 16k I believe. He would be allowed to stop contributing. What are TFLS? How would opting out and then back in help?

If so, I wonder would it be possible to transfer the two old pensions into a new consolidated arrangement, take the 25% lump sum and leave the balance invested?

It might be worth looking at a SIPP with HL for this - he might then consider transferring the SIPP to his workplace pension (if it would be accepted) after a year or so, if it were to be more beneficial in terms of charges etc.

Having had an online chat with the pensionsadvisory website folk after I posted this, we have begun to think this might be the best idea. It would mean we can take a larger 25% without affecting his ability to keep paying in to the current pension, and we can then take advice on how to grow what is left more profitably than the current options seem to be doing.

Dark_Sunday · 11 March 2018 at 12:23PM

TFLS rules for early withdrawal seems to be unclear. Here's 2 situations I know of with people.

1. This person claims to have actually done this. Company pension circa £500k. Move full pot to alternative SIPP, withdraw 25% TFLS, leave balance to grow for drawdown at retirement rate. With the original company pension now with balance of £0, he's increased salary sacrifice contributions to ensure all of his 40% taxable earnings go into the pot.

1. This person is planning to do this next year at age 55. 4 pension pots. Largest with circa £100k . Plans to take £25k TFLS & leave balance to grow. Leave 2 alone to grow take 25% TFLS at retirement. With the 4th continue to contribute to company pension scheme.

From what I've read I'm not really sure these 2 scenarios are legit ?

Brynsam · 11 March 2018 at 12:51PM

Dark_Sunday wrote: »

TFLS rules for early withdrawal seems to be unclear. Here's 2 situations I know of with people.

1. This person claims to have actually done this. Company pension circa £500k. Move full pot to alternative SIPP, withdraw 25% TFLS, leave balance to grow for drawdown at retirement rate. With the original company pension now with balance of £0, he's increased salary sacrifice contributions to ensure all of his 40% taxable earnings go into the pot.

1. This person is planning to do this next year at age 55. 4 pension pots. Largest with circa £100k . Plans to take £25k TFLS & leave balance to grow. Leave 2 alone to grow take 25% TFLS at retirement. With the 4th continue to contribute to company pension scheme.

From what I've read I'm not really sure these 2 scenarios are legit ?

What makes you think these are not legit? Taking the 25% TFLS doesn't trigger the so-called 'pension freedoms' and you are not restricted to paying in only £4,000 a year after doing so.

Dark_Sunday · 11 March 2018 at 8:51PM

So each of these 2 scenarios are actually possible ?? Pension freedoms is actually a lot less complex than I thought if that's the case.

So in theory you can take TFLS & then reinvest in a pension fund to minimise income tax & NI. ??

IanSt · 12 March 2018 at 11:24AM

Dark_Sunday wrote: »

So each of these 2 scenarios are actually possible ?? Pension freedoms is actually a lot less complex than I thought if that's the case.

So in theory you can take TFLS & then reinvest in a pension fund to minimise income tax & NI. ??

Well you do have to be at least 55 (or have a life terminating illness) and if you continue to contribute into the pensions then you have to be careful of recycling rules as the government could hit you with penalties if they believe you're abusing their tax relief system - see the following for more details https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/

Taking pension as lump sum with multiple pensions

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