Can I cash in my pension?

Linton

Jase_from_Up_North wrote: »

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 !

The tax relief you can gain on money being put into a pension each year is limited to contributions of the minimum of £50K (£40K from April 2014) and your earned income. Money from selling houses doesnt count.

If you want to put money into a pension you will have to drip feed it over at least 5 years, depending on your income and of course your tax free allowance. You dont want to put money into a pension without the tax relief as you are charged tax when you take it out so will lose out overall.

So you will be looking for an investment plan where each year you maximise your pension payment and perhaps payments into an S&S ISA, or two S&S ISAs if you have a spouse.

You should ensure that you have perhaps 6 months living expenses in accessible cash to cover emergencies before you start large scale investing.

atush

AS said, nyou will income of some kind in order to put more than 2880/3600 with TR into a pension per year. you can put in as much as your total income, or 50K this year (40 next) if your income is higher.


You can also put in up to 12K in S&S isas, I suggest you do both pensions and S&S isas alongside in order to shelter your money in the quickest way.


Remaining funds can be split into cash funds of emergencies/property purchase here, and unwrapped investments. Unwrapped investments could then be transferred into ISas and pensions in coming years.

mark55man

if you are a basic rate tax payer and are happy with the investment risk you can hold quite large amounts of High Yield shares without paying any extra tax on the income (until it goes above HR)


You then have more time (possibly using cap gains allowance of 10K+ each year) until you can shelter this in a pension/ISA. This method requires a bit of work, but that has been a successful investment strategy for many over the last 10 years - some use this approach to invest money instead of annuity as it has been returning 4% yield

LordLucan

Hi, very much a newbie, so I hope I am posting in the right place.

I will be 65 in the spring and have a private pension pot of £250K. I would like to draw 25% tax-free, as allowed, but I would prefer to defer the rest as I intend to continue working for a few more years yet. I am self-employed and don't want to contribute further to the pension as I have no dependents apart from my wife (who is only 50) and I do have have other sources of income.

My pension provider (ReAssure) is offering only full deferral (no benefits at all on retirement date), or purchasing a pension from ReAssure or taking the cash bonus and then purchasing "an immediate pension" from another provider. There seems to be no provision for taking the cash bonus now and deferring the rest to some future date.

Does this seem right and, if so, how could I achieve what I hope for? Is it possible to purchase a pension from another provider that could immediately be deferred, without making further contributions?

Thanks for any help.

mark55man

It may be against your pension company policy, but its not against the law to do what you suggest - at worst you could transfer the pension (being absolutely sure there aren't any valuable guarantees


from a SIPP you can absolutely take the lump sum and then take no income - often done on earlier retirees

dunstonh

My pension provider (ReAssure) is offering only full deferral (no benefits at all on retirement date), or purchasing a pension from ReAssure or taking the cash bonus and then purchasing "an immediate pension" from another provider. There seems to be no provision for taking the cash bonus now and deferring the rest to some future date.

There is no cash bonus on pensions. What you appear to want is to commence an unsecured pension income and most providers do not offer this on legacy contracts. You would need to transfer it to one that does.

LordLucan

dunstonh wrote: »

There is no cash bonus on pensions. What you appear to want is to commence an unsecured pension income and most providers do not offer this on legacy contracts. You would need to transfer it to one that does.

Sorry if I used the wrong word when I said bonus. What I mean is the 25% tax-free sum on commencement of the pension.

Not sure what you mean by "unsecured pension income". I don't want to take any income from the pension, other than the 25% in cash which I would like to put towards moving home. I wish to defer the rest of the pension until I am at least 70.

Are you able/allowed to mention the names of any providers to which I could transfer the pension, that would allow me to take the 25% now but defer all other benefits for a few years?

jamesd

A transfer is how you can do what you want. It's just the limitations of your current provider, easy to transfer and do it with others. It's harder to list providers that don't allow what you're after than those that do. I don't know of even one pension product aimed at DIY investing that doesn't allow it.

Unsecured pension or income is a technical name for the remaining 75%. The income level selected can be zero.

Before transferring check whether you have any preserved extra benefits, like a guaranteed annuity rate. A GAR can pay as much as twice current open market annuity rates and can be a very good deal. There are often specific ages at which the GAR option must be used to avoid losing it.

Using any pension money to pay for property is likely to be a bad to very bad idea because borrowing or more borrowing is usually cheaper than the lost investment gains from staying invested within the pension. So it's usually a choice to avoidably make yourself poorer. One of the few exceptions is if you're desperate to move to a smaller and cheaper place to make life more affordable but have no access to a mortgage due to lots of bad information in your credit record and anticipated difficulty selling a current owned home, if any.

If there's a GAR at a good rate it would be especially unwise to do what you're planning, since a GAR that might pay 8% or more for life is far more valuable than any saved mortgage interest cost.

dunstonh

Not sure what you mean by "unsecured pension income". I don't want to take any income from the pension, other than the 25% in cash which I would like to put towards moving home. I wish to defer the rest of the pension until I am at least 70.

Unsecured pension income is what you want (old name is drawdown). Secured income is annuity. If you take the 25% and set the income at zero then you require a contract that offers unsecured income. The income can be from zero up to the appropriate limit and would be a direct deduction against the fund. Hence why it is called unsecured.

Are you able/allowed to mention the names of any providers to which I could transfer the pension, that would allow me to take the 25% now but defer all other benefits for a few years?

Most of those open for business do it on their main contracts. You wont find it on stakeholders.

Talyn

LordLucan wrote: »

I would like to draw 25% tax-free, as allowed, but I would prefer to defer the rest as I intend to continue working for a few more years yet.
I am self-employed and don't want to contribute further to the pension
My pension provider (ReAssure) is offering only full deferral (no benefits at all on retirement date), or purchasing a pension from ReAssure or taking the cash bonus and then purchasing "an immediate pension" from another provider. There seems to be no provision for taking the cash bonus now and deferring the rest to some future date.

Does this seem right and, if so, how could I achieve what I hope for? Is it possible to purchase a pension from another provider that could immediately be deferred, without making further contributions?

Thanks for any help.

Hi, unfortunately ReAssure were right. You can't take the tax free cash and leave the rest invested. The tax free cash is part of your encashment options. You can't 'half-encash'. It's all or nothing as when you encash you are essentially closing down the pension policy and trading it in for one of you options.


You can:
- Defer taking any benefits from it until a future date. This leaves it invested. You don't have to keep paying into it if you don't want to unless you are contractually obliged to. Any quotes they sent you showing what you might get paid at retirement may then be inaccurate though as they would have been assuming you kept paying. Stopping will change that.
- trade in the whole value of the pot for a pension annuity income for you/you and the spouse or dependant.
- take up to 25% out as a tax free cash lump sum and trade the rest in for an annuity as above.
- Go for the open market option where you have the annuity immediately paid out by a different provider (with or without the tax free cash).
- Transfer the whole pot value into a different product that will accept it. The rules for taking it then may be different depending on what it is you moved it to. For instance with an Income Drawdown policy you can take a lump sum each year and leave the rest invested. These types of policy usually need a minimum investment value to set up though depending on who it is with and some are only available through a Financial Advisor.