pension lump sum

yewtree_01

i am due to retire in Jan 11. I have three small work pensions all offering a lump sum. Can i take all three or is there a limit about how much tax free cash i can take? should i amalgamate all three pensions together instead of getting three small amounts each week? cheers

dunstonh

Can i take all three or is there a limit about how much tax free cash i can take?

There is only the limits on each scheme. Not a total (ignoring the 1.8 mill lifetime allowance which wont apply here)

should i amalgamate all three pensions together instead of getting three small amounts each week?

That could very well be the best option but its impossible to say without knowing the details of the existing pensions. Alterantively, if they are small, then triviality/stranded pot rules may apply and you may be able to access them as lump sums.

3yearstogo

I thought that if all 3 pensions added together are less than 18k (1% of LTA currently 1.8 mil) you should be able to claim them all via the triviality rule and contact each provider holding the money to say this is what you want. I then thought that under trivi rules that the sum would be paid 25% TFC then the remainder would be taxed at a 40% rate but then paid out as a lump sum (dont through each provider).

Sorry if my take on things are wrong. Why would the triviality rule not apply dunstonh? Always nice to learn something new :-)

dunstonh

Why would the triviality rule not apply dunstonh?

I did mention that in my last sentence where I covered stranded pots and triviality. However, the OP hasnt said what type of pensions they are or what the values are. So, cant tell yet if it applies or not.

yewtree_01

my pensions at the moment stand at lump sum of £4371 then yearly at £925.
another is lump sum of £3197
another is £3880 then yearly at 626.
will i be better off consolidating them under a totally different insurer? i am unsure when they say the balance must be used to secure an annuity with a different provider. where can i go to get advice in plain English?

dunstonh

Triviality is out then as you are above the limit.

will i be better off consolidating them under a totally different insurer?

Possibly, even probably. However, it would depend on your health, occupation, post code, options you want etc. as to what is best.

where can i go to get advice in plain English?

Any local IFA. Its very simple for an IFA to handle and give you advice.

yewtree_01

are IFAs going to charge me and what is the Triviality rule and limit? Does any of this affect my state pension?
How much income can i have before i pay tax? Sorry to seem so ignorant but i haven't a clue. cheers

jamesd

yewtree_01 wrote: »

i am due to retire in Jan 11. I have three small work pensions all offering a lump sum. Can i take all three or is there a limit about how much tax free cash i can take? should i amalgamate all three pensions together instead of getting three small amounts each week? cheers

Are these final salary or other earnings-related pensions where the amount you get isn't related to investments that you can see and change? If they are, then you need to know the commutation factor, how much ongoing pension income you lose to get the lump sum. This may vary depending on how much lump sum you take.

For pensions of this sort, it's an advantage to have them paid by the pension schemes of more than one employer because that reduces the risk that your whole work pension may be reduced if the scheme fails and is transferred to the Pension Protection Fund. The PPF will protect 90% or so of the pension payment unless it's as some level over £20,000 a year.

If it's a personal pension, including the SIPP type, where you can control and choose the investments than it is is probably to your advantage to take the maximum lump sum, then invest it again inside a stocks and shares ISA. This is because the investments can be the same but he ISA income will be tax free. The PPF doesn't apply to this sort of pension.

yewtree_01 wrote: »

are IFAs going to charge me and what is the Triviality rule and limit? Does any of this affect my state pension?
How much income can i have before i pay tax?

IFAs would charge you. Triviality is if the pension total value (not just lump sum, total pension pot value) for all of the work and personal pensions you have is less than £18,000. As a very rough calculation, add up the value of all of the lump sums you're being offered. If the total is £900 or less there's a chance that the triviality rules might apply. Otherwise it probably doesn't apply, but it's worth saying more about the types of scheme and pension pot values so we can check. We'd need to know about all pensions except the state pensions.

This doesn't affect your state pension in any way.

You get the standard personal allowance for income tax, but this increases over age 65 and over age 75 using what used to be called the age allowance. If your total taxable (not including ISA) income is above £22,900 a year the higher allowances are gradually reduced back to the basic £6,475 a year of tax free taxable income. For a 65 year old with taxable income below £22,900 the allowance is £9,490 of tax free income a year.

Using ISAs for income, particularly investments within a stocks and shares ISA, is one of the better ways to exploit the tax system to your advantage.

dunstonh

are IFAs going to charge me

Some may. Some will just go by the commission (which is no different to you doing it yourself). Most will go by commission and you wont pay explicitly. If the annuity rates are higher you will end up better off, if they are lower then the existing providers will be used and they will usually pay the IFA. Therefore you dont need to.

what is the Triviality rule and limit?

Dont worry about it. You are well through the limit (more than twice the limit). So, none of it applies to you.

Does any of this affect my state pension?

No.

How much income can i have before i pay tax?

£9490 (from 65). State pension is paid gross but is taxable. So that goes towards that £9490.

Sorry to seem so ignorant but i haven't a clue.

That is what an IFA will help you with.

yewtree_01

HI these are all work related pensions. i took voluntary redundancy 5 months ago. so i'm at present getting pension credit instead of job seekers allowance. the amount of money in these pensions will obviously not change as i not employed. the three pension were due to the changes at work not a different employer. In order to get any pension credit i had to get predicted figures from my pension companies. I'm still a little lost and unsure what to do for the best. One of the pensions is with Aviva another with Legal and General and last one with the Prudential. i'm beginning to feel i should leave well alone and just take the offered lump sums with monthly pension.
I wouldn't have thought an IFA would help as i'm only talking about small amounts see earlier figures. cheers

jamesd

It's worth seeing an IFA for those amounts. The total you have is average to high, not low, compared to typical values. One big reason for seeing an IFA is that the insurance companies that operate pension schemes will only offer you their own annuity to pay the ongoing income. It's rare for that to be the best deal available to you and it can cost you a significant amount of money for the rest of your life. Even if you're in perfect health the difference could be 20% more money. If you have anything that could affect how long you might live, from being overweight through smoking or having a diagnosed medical condition like heart trouble the difference can be much larger.

Just pay a visit to unbiased.co.uk and then call around some local IFAs to ask whether they are interested in dealing with the amounts you have and what the costs for you will be. It'll probably be no direct cost to you, with them just being paid out of commission that the pension company would just keep for itself otherwise. Also tell them the planned retirement date.

You should have a read of The Annuities Guide article here and then the guide itself.

The reason you have a legal right to buy an annuity elsewhere and the reason that pension companies are require to tell you about the open market option is that it's almost always the right thing to do, but it's not in their interest to tell you about it. Don't get caught out and have a lower income for the rest of your life when you can easily avoid it.