Taking 25% lump sum at 50

vet8

I am sure others have asked this, but I cannot find it so some advice would be welcome, please.

Due to financial problems we need to access some money and I have read that you can take the 25% lump sum out of your pension at 50, rising to 55 next year. My OH contacted his 2 pensions funds and asked them about this and they both said he could only do that if he retired and claimed the pension, which he is not as he is only 51.

A financial adviser we spoke to said the pension funds were wrong and he could take the money now. Who is right and how do we persuade one of the pension funds to part with the dosh?

Thanks.

dunstonh

A financial adviser we spoke to said the pension funds were wrong and he could take the money now. Who is right and how do we persuade one of the pension funds to part with the dosh?

They are both right and they are both wrong and there is possible terminology confusion.

When you take the 25% from the pension you are commencing the pension. With an unsecured pension you can choose to take no income at this time and remain invested (although death benefits change).

The pension rules allow the pensions to do it but the pensions themselves dont have to offer an unsecured pension. So, in your case, the pensions you have dont allow it (stakeholders dont for example. Most occupational schemes dont. Most legacy (old) pensions dont)

If that is the case, you would need to transfer the pensions to a personal pension, SIPP or drawdown plan that does allow it.

EdInvestor

If you move your pension to an income drawdown plan at providers like these, they will pay out the 25% to you.You then can invest the remainder until you need it later.You don't have to take a pension income at this stage.

https://www.h-l.co.uk
https://www.sippdeal.co.uk

novice-saver

I'm sure the opinion of the Telegraph will be open to debate here, but I wonder how good a deal some of the SIPS are.

EdGasket

'....and how do we persuade one of the pension funds to part with the dosh?'

ha ha - Like getting blood out of a stone !

I would say that you'd probably need to transfer both pensions into a SIPP, take the 25% lump sum and leave the rest invested as a 'drawdown'.
I am also around 50 and looked into doing the same thing. However I concluded that the charges involved with SIPPS/drawdown were not worthit until I actually retire and need to take money out regularly; but then I don't need 25% lump sum right now so I can afford to wait.
EdInvestor is correct in that you don't need to take an income at this stage BUT as far as I could see, to get the 25% lump sum out, you had to agree to the drawdown charges each year whether or not you actually drew any money out. If they don't get you one way, they get you another !

If you do manage to 'get the dosh', I would be most interested to know what solution you used.

dunstonh

However I concluded that the charges involved with SIPPS/drawdown were not worthit until I actually retire and need to take money out regularly; but then I don't need 25% lump sum right now so I can afford to wait.

Charges are rarely any different for uncrystallised or cystallised funds. However, as you say you dont need it then there is no reason to crystallise the funds. All you would end up doing is taking the fund into a taxable position compared to its current tax free status.

EdInvestor

Drawdown annual charges at the providers I mention are respectively nil (H-L) and (from December) £75 p.a (Sippdeal).

EdGasket

'Drawdown annual charges at the providers I mention are respectively nil (H-L) and (from December) £75 p.a (Sippdeal).'

That was not my understanding; it looked to be in the region of £250 per year.

EdGasket

dunstonh wrote: »

Charges are rarely any different for uncrystallised or cystallised funds. However, as you say you dont need it then there is no reason to crystallise the funds. All you would end up doing is taking the fund into a taxable position compared to its current tax free status.

Can you explain this 'Crystallised' fund business a bit more please? Are you saying that once the tax free lump sum is taken and the pension becomes a drawdown plan, that any investment gains are taxable or are you saying that only withdrawals are taxable subject to one's annual allowance? I understood the balance not taken as a lump sum just basically continues as before??

bendix

EdInvestor wrote: »

If you move your pension to an income drawdown plan at providers like these, they will pay out the 25% to you.You then can invest the remainder until you need it later.You don't have to take a pension income at this stage.

www.h-l.co.uk
www.sippdeal.co.uk

Is this advice, or an opinion?

dunstonh

EdGasket wrote: »

Can you explain this 'Crystallised' fund business a bit more please? Are you saying that once the tax free lump sum is taken and the pension becomes a drawdown plan, that any investment gains are taxable or are you saying that only withdrawals are taxable subject to one's annual allowance? I understood the balance not taken as a lump sum just basically continues as before??

Pension funds which have not had the income and/or lump sum taken from them are known as uncrystallised funds. They are tax free on growth and on death. When you take the 25% and/or the income, the funds become crystallised. That means you cant take another lump sum from those funds again, regardless of what they grow to in future. It also means they become taxable on death. The investments themselves still remain tax free within the pension for growth purposes.

Any new money paid in is uncrystallised.