Can I cash in my pension?

xylophone

( as per usual just over ) my allowance for income tax.

http://www.hmrc.gov.uk/taxon/worked-examples.htm might be worth a look to see if it has any relevance to your situation.

atush

If 4 k is all you receive per year, and you aren't getting ANY benefits then you a re UNDER your personal allowance. I would think with a sole income of 260/month you have benefits available to you.

I think a trip down to the CAB might be in order, to find out it you are getting any and all benefits due. and of course a trip to the debt free board to help with your debt/spending.

fourmarks

Learned guidance please.


My wife has a tiny pension with Standard Life dating back 25 years.
No funds have been paid into it for over 20 years and it has, in effect, been overlooked and forgotten about. My wife is now 55, the pension fund is just under £21k and is not, thankfully, part of the fiscal plans for our dotage. Is there any downside to cashing it in now rather than letting it bimble on?


As a non-taxpayer is she entitled to a tax free lump sum above the usual 25%?


Thanks.

Linton

fourmarks wrote: »

Learned guidance please.


My wife has a tiny pension with Standard Life dating back 25 years.
No funds have been paid into it for over 20 years and it has, in effect, been overlooked and forgotten about. My wife is now 55, the pension fund is just under £21k and is not, thankfully, part of the fiscal plans for our dotage. Is there any downside to cashing it in now rather than letting it bimble on?


As a non-taxpayer is she entitled to a tax free lump sum above the usual 25%?


Thanks.

£21K I am afraid is above the "trivial" limit and so she cant cash it in. Does you wife have any other pensions that she could transfer the £21K into?

The only other practical option is to take the 25% tax free lump sum and use the rest to buy an annuity of about £500-£1000 per year depending on the details. She cannot normally take more than 25% as a lump sum.

Whether its a sensible idea to take the pension now depends on what the pension is invested in, and whether she needs the money. Usually one says dont take a pension early if you dont need to, If the SL pension is expensive or has poor fund choices she could transfer it elsewhere - in 10 years with good investment returns it could double in size.

mark55man

I think fourmarks should be noted as this is the first correctly positive answer in this thread to the question "can I cash in my pension".


I vote it should be struck from the record lest it confuse people who are not over 55;)

atush

Or perhaps they should have posted their own thread in the pension forum lol?

fourmarks

Thank you for your advice Linton. Not sure I understand the ensuing hilarity though. Perhaps I should stay in more. :-)

Talyn

fourmarks wrote: »

Learned guidance please.


My wife has a tiny pension with Standard Life dating back 25 years.
No funds have been paid into it for over 20 years and it has, in effect, been overlooked and forgotten about. My wife is now 55, the pension fund is just under £21k and is not, thankfully, part of the fiscal plans for our dotage. Is there any downside to cashing it in now rather than letting it bimble on?


As a non-taxpayer is she entitled to a tax free lump sum above the usual 25%?


Thanks.

Is it a company pension or a personal pension? From what you said it's not 100% clear what type of pension it is but sounds like it might be a defined contribution pension? In which case if you cash it in now you will trade it's current value in £'s for a optional 25% tax free lump sum and trade in the remainder for a pension annuity (an income paid in instalments guaranteed for the rest of your life at the rate quoted by the provider at the time of encashment). You have the right to shop around pension providers for an annuity deal (called the open-market option).
You can leave the pot invested but it must be cashed in by the age of 75 otherwise you can be penalised. If you leave it invested the pot has the potential to grow but that is completely dependant on market conditions, the funds it is invested in, the annual management charge etc.. It could even drop in value. In the long term the hope is for a general rise - in the short term it can be up and down like a yo-yo!
You can only take up to 25% of the pot as a tax free lump sum and the rest as an annuity. There is an exception if your are medically declared terminally ill (less than 12 months to live) in which case you can apply to have the whole pot paid out. There is also a clause to take the whole lot in cash minus tax (called Triviality) but from what you said it sound like you are over the limit to qualify for that (it only applies to 'trivial' sums of money not really worth cashing in for an annuity - the trivial limit changes every year or so).
- The annuity income paid out from the pension will count as taxable income on top of any other earnings that person has just as if it was a job (or 2nd job). You might want to take that into account as you said she was a non-tax payer - would the annuity income together with any other income push her into the earnings bracket to start paying tax?


HOWEVER because you mentioned the pension was 25 years old you may have some protected tax free cash entitlement because the pension rules were different back then (they changed in April 2006). Just because the rules today say you can only have up to 25% tax free lump sum the rules may have been different back when the pension started - as long as the pot hasn't been tampered with those rules usually still apply.


Long story short - do the following:
1) Phone or write to the pension company and ask for an immediate encashment quote AND a projected quote (to a future date of your choice). This will show you what you would expect to get now and also what you might get if you left the pot invested.
2) Ask them if you qualify for Triviality (also called 'Commutation')
3) Ask them if there are any protected benefits or protected tax free lump sum enhancements (this should normally be stated on the quote anyway but it helps to ask). If so ask if it would be lost if you moved the pot to another provider.
4) If in any doubt SPEAK TO AN INDEPENDANT FINANCIAL ADVISOR! The Pension company is not allowed to give you any kind of advice.


Finally - some company pensions are/were held under Trust (usually defined benefit schemes). That means the employer is the client and owner on your behalf and is responsible for it, NOT the pension provider. If this is the case you can only speak to the employer and deal through them - the pension company cannot give you any info directly without the employers permission even though the pension is in your name. In these cases the employer is the client and to give you info would be against the Data Protection Act.


Phew! Hope that helps!

Jase_from_Up_North

What are the best pension options for someone whose in their 40's has a property that's recently been sold abroad and has about £200,000 to invest in a pensions scheme ? Wanted to ask here before I looked at paying for pension advice !

mark55man

can I suggest you start a separate thread as this one is mainly for people trying to take stuff out (usually when they can't) rather then trying to put stuff in - you may get more focussed discussion


for a start though - and maybe to help slightly elaborate your question should you start a separate thread


* tax limits will be relevant 40/50K a year (but only if you have paid tax)
* do you need investment strategy advice or are you planning hands on
* you've obviously done well, are you looking at early retirement
* what current provision do you have for pensions
* what other savings / investments (eg if you are already fill to the brim of ISA's and premium bonds and 6 months living expenses) then maybe go for it AQAP, otherwise you will need to blend and balance