Can I cash in my pension? Request for sticky!

tocsin

After Loughton's tongue in cheek thread the other day, as a long time lurker I decided to PM MSE Andrea about the possibility of having a "Can I cash in my Pension?" sticky answer.

The response was positive (with the sensible caveat that newbies won't always see the stickies), and should be arranged through the board guide or herself. At least newbies could then be pointed to the sticky, and minimal disturbance caused...

So, can the experts of the Pensions Forum either point to a suitable recent thread with the right answer (and not too much telling off), or come up with a model answer to put up as a sticky?

Thanks all!

Lokolo

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 some pension schemes that do allow it, you should read your pensions T&Cs.

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

These companies are against regulations and should be avoided. You can end up being fined by HMRC leaving you with nothing.

So when can I cash in my pension?

You can usually take your pension from age of 55. You can 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 to take it at a certain age, such as final salary pension schemes.

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. However you should plan to have more than this 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 out of your pension 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 I recommend using this one, it makes it clear what you could get at retirement - however, remember, it's only a prediction and isn't guaranteed.

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Something like this? Although I am sure someone can recommend edits for it

dunstonh

Some schemes do have a protected scheme retirement age which is under 55. Unusual but they do exist.

Some schemes allow a greater amount than 25% tax free cash (mainly section 32 buy out bonds which gained automatic transitional relief on A day). If transferred to allow earlier access at age 55, that protected tax free cash amount would be lost and it would become 25%.

moonrakerz

tocsin wrote: »

After Loughton's tongue in cheek thread the other day, as a long time lurker I decided to PM MSE Andrea about the possibility of having a "Can I cash in my Pension?" sticky answer.

The response was positive (with the sensible caveat that newbies won't always see the stickies), and should be arranged through the board guide or herself. At least newbies could then be pointed to the sticky, and minimal disturbance caused...

So, can the experts of the Pensions Forum either point to a suitable recent thread with the right answer (and not too much telling off), or come up with a model answer to put up as a sticky?

Thanks all!

The big problem is: if people can't be bothered to search the site or Google it, they equally won't bother reading the sticky ! You have already said this............

Why should the "experts" keep answering the same questions ? albeit by referring to another thread. Isn't that what the "search" function is for ?

It's a logical idea - but I fear it will have absolutely no effect........

JoeCrystal

Well, at least we can just post the link to sticky.

Example Opening Post: I want to cash in my final salary pension with local government at age of 23. I really need the money to go on holiday to South America and it is important! I really do not need to save for retirement at the moment since I can always do it later! After saving for deposit to buy new home, get married, have kids and once they leave the nest when they go to uni, then I think I can save for retirement!

Example Answer: "Read the Sticky! Here is the link!"

Cheers

Joe

atush

People are much more likely to read a sticky than use the search function.

tocsin

Thanks to all for the replies so far - I'll have a look tomorrow for any further suggestions / amendments, and then see if I can get the "model answer" stickied.

Loughton_Monkey

tocsin wrote: »

Thanks to all for the replies so far - I'll have a look tomorrow for any further suggestions / amendments, and then see if I can get the "model answer" stickied.

Yes, as already mentioned, it will be far easier simply to respond with the 'link'. Maybe it should also touch on the 'transfer my Final Salary to a SIPP because it's a rip-off' merchant as well if it doesn't over-complicate.

In addition to Lokolo's points, it should probably start with a basic "why" explanation in the form of:

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.

Zelazny

Lokolo wrote: »

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 some pension schemes that do allow it, you should read your pensions T&Cs.

The only thing that I'd add here is that sometimes a scheme winds up, and in that case, if the total value of a member's benefits is under £18k they can pay the member a winding up lump sum. As dunstonh says, there are some schemes which have protected retirement ages which are below 55, but these are really rare (it normally applies only to people who are not expected to work until 55+, like professional footballers)

Lokolo wrote: »

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

These companies are against regulations and should be avoided. You can end up being fined by HMRC leaving you with nothing.

It's slightly worse than that. 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!

Lokolo wrote: »

So when can I cash in my pension?

You can usually take your pension from age of 55. You can 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 to take it at a certain age.

If your over 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. However you should plan to have more than this otherwise you will be living very poorly during retirement.

This is good, but I might specify that the case for defined benefit (such as final salary) schemes can be a little different. If you have a Guaranteed Minimum Pension (GMP), you might not be able to take any benefits until retirement age, and any cash that is available may be restricted to ensure that the GMP is covered. Also, the calculation for cash payable is not very simple (see for example http://forums.moneysavingexpert.com/showpost.php?p=44918876&postcount=2 and http://forums.moneysavingexpert.com/showpost.php?p=44919630&postcount=3 )

Also might be worth mentioning that in the case of trivial commutation, only 25% of it is tax free.

Otherwise, good job!

edinburgher

This is a really good idea. While I appreciate some of the comments that posters who haven't bothered to search probably won't read a sticky without some prompting, having the sticky in place is a brilliant start.

It will save a lot of time and remove some of the emotion from the questioning (i.e. sarcastic comments from the posters who've seen the same question a thousand times and hurt rejoinders from the forum newbies who go away thinking we're all rude sods.)

vbm

As well as the special occupations, such as downhill skiers etc that can take their benefits early. There are also many occupational schems that retain the right to retire from age 50.

If the member had an uqualified right to take their benefits from age 50 in June 2003, they can still take their benefits from that age. An uqualified right, essentailly means they did not need to the trustee permission to take benefits at that age.

Not really worth putting in the sticky, but just an FYI for the pension pigs