Can We Take a Lump Sum

tesuhoha

My husband is 61. He has a Legal and General stakeholder pension which he took out years ago and stopped paying into when he realised it wasn't going to be worth very much.

We have just had the pension illustration and the pension is worth £5,610 and a forecast at age 65 of a pension worth £232pa. I have asked him if we should start paying into it again but he says it is not worth it for four years.

My question is that as the pension is hardly worth having would we be able to take a lump sum out of this now? I read something on the main site about being able to get 25% but I am unsure if I have interpreted this correctly.

dunstonh

Is it the only pension he has or is there others?

tesuhoha

Its his only pension I'm afraid. We have had a pension forecast and he will get the full state pension. I have the full state pension already and have a small work pension. He plans to work past 65 and the mortgage will be fully paid so we should be able to survive.

dunstonh

As he is over 60 and its the only pension he has, he can exercise the triviality option and have the full amount paid out (minus tax). As the pension provider for the forms to take the pension as a trivial payment.

tesuhoha

dunstonh wrote: »

As he is over 60 and its the only pension he has, he can exercise the triviality option and have the full amount paid out (minus tax). As the pension provider for the forms to take the pension as a trivial payment.

That is very good news. Thank you. I did not expect that.

McKneff

tesuhoha wrote: »

That is very good news. Thank you. I did not expect that.

:j:j:j

Thanks Dunstonh, for some reason I thought it was 65 when you could exercise the triviality option. Cant think why though.

kidmugsy

Hold on. If he were to take it as "trivial" in the tax year after the one in which he finally stops work, he could get all of it out tax-free. At the moment he'd get 25% tax-free and pay income tax on the rest. You have to work out which of the two possibilities you'd prefer. Is it worth delaying for several years to avoid an income tax deduction of, at present, 0.2 x 0.75 x £5.6k = £840? Only you two can decide.


Arithmetic of delaying: assume that his Personal Allowance against income tax will be about £10k per year. Subtract the State Pension of (say) £5.5k per year: therefore further income that will still be available tax-free = £10k - £5.5k = £4.5k per year. Compare that to: taxable part of pension = 0.75 x (say) £6000 = £4.5k. Bingo! He gets the 25% lump sum tax-free AND the taxable bit tax-free too. If the two of you feel you could afford it there's another thing you could consider. He could open a second pension now and start saving into it with a view to accumulating up to another £6000 before he finally stops work. Then he could cash that in under "triviality" in the tax year AFTER he does the first "triviality" cash-in. He has to be careful to do the two cash-ins within twelve months of each other. As long as he does that, he'll avoid the tax on this second bit of saving too. You could always try this extra pension saving and if it proves too tight financially, just stop it. His savings would still be there in his pension awaiting his instructions.

gadgetmind

Yup, in this case triviality is your friend, but really research the rules.

What work even better is that anything he pays in now will be tax free. I don't know how much tax he pays, but even if it's zero, he can put in £2880 per year and the government will add £720 to this to make £3600. If you get then get all of that tax free, then you're laughing!

tesuhoha

Has my husband worked this out right, £5,600 at present, to add £2880 per year for 4 years + £720 from the government would produce approx £20,000? Would we still be able to claim this as a tax free triviality payment or would he have to take a pension out of it? My husband pays tax at 20% at present.

tesuhoha

Very grateful for all this information. Would not have known this.

somethingcorporate

IIRC triviality is total pensions worth £18k, so that is going to be the magic number you should NOT go over if you want to excercise the ability to take the lot at once.