Can I cash in my pension?

jamesd

You can take 25% now and draw around 6% a year of capped drawdown income from the remaining 75%. Offered by most modern products and available to anyone aged 55 or over.

Under current rules as soon as you have £12,000 of guaranteed income like that from defined benefit pensions or the state pensions you can take any part or all of the remaining pot as a lump sum at any time. This is called flexible drawdown.

The consultation at the moment is on removing the £12,000 requirement and just what the other rules should be for next year.

Regardless of the result of that consultation there is now a small pot rule that lets you take up to £10,000 out of a pension pot provided that's the whole balance. You can do this for up to three pots once you reach 60, at any time. You can transfer first to try to get under the limit but if you do transfer you can't use this rule until three years after the transfer.

You will not qualify for triviality because your defined benefit pension will be worth so much that you will be over the triviality limit. But the small pots rule is different and you can still use that one you're below the limit.

it appears that the best option for now is to take 25%, optionally take capped drawdown income, then wait for the final rules for full flexible access next year, unless you already have the £12,000 of income coming in.

atush

isn't the DD rate 1.5x GAD? so if gad is 6%, the up to 9%?

Anyway, the OP can do it now if they transfer. And do beware abnout taking the rest as income as it will be taxed. If not needed, i'd look at keeping the pots until you actually retire and take at the rate of PA each year therefore no tax to pay.

downshifted

My husband, aged 62, has a deferred pension with the TDG pension scheme. He has a fund value of £3872 in the money purchase scheme, which is predicted to give a pension of £120pa and £2331 in AVCs which is predicted to produce a pension of £70pa, both when he is 65.

He would rather have the cash, but upon applying we have a reply saying "the new ruling in respect of de minimis is still under consideration by the Trustees, therefore at this point in time you do not qualify for this. Until we have confirmation from the Trustees whether the scheme rules allow for the new budget announcements we are unable to continue with the settlement of your benefits in respect of triviality or de minimis"

Is this reasonable? If so, what would be a reasonable timescale for the decision? They have given no indication of a timescale. Should he do anything meanwhile to press his point?

(In case anyone is wondering, I have been the main breadwinner and my pensions are what support us - he has two other pensions, one with LGPS in payment at about £2800pa and one to come into payment at 65 at about £1500pa)

Many thanks for any help and advice

atush

Well the money purchase part at least should be able to be transferred to a place where you can exercise triviality if not the AVC.

Have you asked if either or both can be transferred, leaving the DB TGD pension as it is?

dunstonh

He would rather have the cash, but upon applying we have a reply saying "the new ruling in respect of de minimis is still under consideration by the Trustees, therefore at this point in time you do not qualify for this. Until we have confirmation from the Trustees whether the scheme rules allow for the new budget announcements we are unable to continue with the settlement of your benefits in respect of triviality or de minimis"

Is this reasonable?

Yes. it is reasonable. An AVC is not a personal pension. So, you shoudnt expect it to be treated the same way. However, it may be possible to transfer the AVC out without impacting on the main scheme (not always possible). Although it may not be a good thing to do.

f so, what would be a reasonable timescale for the decision?

After the 2006 changes on pensions, many occupational schemes took years to implement changes. Even today, there are some that have not offered all the 2006 changes. If the AVC can be integrated with the main scheme, as many can, then it would not be a good thing to have it paid out as a taxable lump sum when it could be utilised as part of the tax free lump sum.

downshifted

Thank you for these replies.

If I understand correctly, either we wait two years for a grand total of around £190 per annum, or we should now ask whether the AVC pot and the personal pension pot could be treated separately? And consider moving and then cashing in the personal pension part?

I didn't think there was a Defined benefits part, I though it was all money purchase, everything in his statements for both pension and AVCs is described in terms of investments (in the Black Rock Life Path fund) and projected benefits. His other two pensions (with LGPS and another company) are both defined benefits, and show the pension in terms of years service rather than investments

dunstonh

If I understand correctly, either we wait two years for a grand total of around £190 per annum, or we should now ask whether the AVC pot and the personal pension pot could be treated separately? And consider moving and then cashing in the personal pension part?

There is no personal pension (at least you havent mentioned one). There is an defined benefit scheme with a linked in-house AVC (although it is really a defined benefit scheme)

It may be possible to transfer the AVC to a personal pension but it may not be the right thing to do.

I didn't think there was a Defined benefits part

The term deferred pension is typically used to indicate a defined benefit scheme.

downshifted

I'm sorry if I have used incorrect wording.

The AVC benefits statements says

"This statement relates solely to your deferred money purchase fund or your AVC fund"

The other one says "This is your personal estimated statement of benefits provided for you as a member of the TDG Pension Scheme. It provides details of the investment funds in which your account is currently invested and an estimate of your likely benefits based on a series of assumptions between now and the date you retire"

Each statement shows the figures previously quoted.

Each statement says "At retirement you will have the option to purchase retirement benefits that best suit your personal circumstances. One option available to you is to use part of your retirement account to provide a tax free pension commencement lump sum. If you die while you are a member of the scheme your beneficiaries would receive the total value of your individual account"

That's why I thought it was a money purchase pension scheme and why I was surprised the new rules didn't mean he could have cash rather than a miniscule pension

downshifted

Here is a Government fact sheet on the recent pension changes which led me to believe my husband could take his small pension pot as cash

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/301563/Pensions_fact_sheet_v8.pdf

The relevant part to my husband's position is:

But in the meantime, from 27 March 2014 ...


We’re increasing the size of a small pension pot that you can take as a lump sum, regardless of your total pension wealth, from £2k to £10k.


But the scheme is not doing this - they say the trustees are deciding whether to apply the new rules - which does not seem right - they can't decide NOT to follow legislation, can they?

brewerdave

Another question for the experts re "small pots" How are they valued for the £10k limit.
I have a small private pension with Prudential from a few years ago; the current value (April 2014) is given as < £10k -but the expected bonus at 65 is shown as ~ £1.5k which would lift it over the £10k limit for small pots.
Is it likely that I would be allowed to "cash" this in now (want to do it within 2014/5 tax year)?-or will the potential final bonus preclude ?
I would then plan to cash another small private pension in 2015/6 and similarly in 2016/7 in order to use the cash raised to buy my wife extra state pension before the deadline in April 2017.