Can I cash in my pension?

dunstonh

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

It doesnt mean it applies to all types of pensions though. Contract based pensions will offer those but trust based pensions may not or may take longer to make changes to their rules.

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?

The legislation outlines the options that can be made available. However, it does not mean that all options have to be offered.

dunstonh

brewerdave wrote: »

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.

The transfer value is used to decide the value as that is the value you get if you transfer it or take benefits today. In your case, it would be the value plus final bonus accrued to date minus any MVR (if one exists).

If that is over 10k then you cant use the £10k rule.

atush

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,

You called this money purchase so I thought you had 2 of these attached to a DB scheme (as money purchase ones dont have AVCs)

It looks like you just have a DB/final salary scheme and a money purchase AVC. Or somehow you have a MP scheme with an Avc which I have never heard of.



Basically I dont know what you have?

jamesd

brewerdave, you probably can take the 25% tax free lump sum. That would probably reduce the pot size to below £10,000 and you could then use the small pots rule.

Before you reach 65 it is likely that next year the ability to take all of the pension pot without using the small pots rule will be introduced, we just don't know the details yet. We'll know more around March or April 2015.

However, I'm concerned about the bonus at age 65. That implies that it is invested in a with profits type of investment and that you may lose much or all of the bonus. While it is good to buy more years of the state pension, the cost of losing the bonus makes this particular pension pot look like a bad way to do it. You lose at least 7% a year of effective interest rate by losing the bonus.

Rather than using this pension, have you considered something like a personal loan that you may be able to get at lower cost, then repay fully once you have received the bonus?

downshifted

Thank you for this. We had obviously been carried away by the Government spiel. It's just a case of waiting and seeing if the trustees do agree in due course I guess

dunstonh wrote: »

It doesnt mean it applies to all types of pensions though. Contract based pensions will offer those but trust based pensions may not or may take longer to make changes to their rules.



The legislation outlines the options that can be made available. However, it does not mean that all options have to be offered.

brewerdave

jamesd wrote: »

brewerdave, you probably can take the 25% tax free lump sum. That would probably reduce the pot size to below £10,000 and you could then use the small pots rule.

Before you reach 65 it is likely that next year the ability to take all of the pension pot without using the small pots rule will be introduced, we just don't know the details yet. We'll know more around March or April 2015.

However, I'm concerned about the bonus at age 65. That implies that it is invested in a with profits type of investment and that you may lose much or all of the bonus. While it is good to buy more years of the state pension, the cost of losing the bonus makes this particular pension pot look like a bad way to do it. You lose at least 7% a year of effective interest rate by losing the bonus.

Thanks for the advice - the sourcing of money elswhere isn't a problem and I'm only 11 months away from 65!! - I just thought that looking at the "potential" annuity payouts being quoted by Prudential (and Standard Life & Axa Wealth on other small pots) it seemed better to pay whatever 20% band tax was due, then get a much better return for my wife via an enhancement of the State pension as she will pay little or no tax.To ensure that I didn't fall into the 40% tax band in any one year I was looking at spreading the surrenders over the 3 years to have the money raised by April 2017.
I can leave it until after the April 2015 deadline and see what transpires!:T

jamesd

To avoid the 40% tax band you might try using the lump sums first then capped income drawdown for a while, or the new more flexible type under whatever its rules turn out to be, up to the 40% point. Since you have several pension pots you might well be able to get quite close to the 40% point with capped drawdown if you were to combine them.

whitey012001

Hi all,

I'm looking for a bit of advice. I have a pension from an old employer, About 20k, I wanted to transfer this into my new scheme but they won't let me, so it's just sitting there.

I'm building my own house in my garden, splitting off the land and selling selling my house to reduce my mortgage and allowing me to up my pension payments. However I'm trying to find all available cash build without having to borrow on a self build mortgage.

I think I can cash in my mortgage and pay 55% tax, but as I earn £37k would this put me over the 40% tax bracket or is it not linked to my earnings?

Any help or advice greatly appreciated.

Nei

gadgetmind

whitey012001 wrote: »

I think I can cash in my mortgage and pay 55% tax, but as I earn £37k would this put me over the 40% tax bracket or is it not linked to my earnings?

You mean cash in your pension? That 55% is a penalty for doing something you're not really allowed to, so even if it were a good idea (which it isn't) the chances of you being able to access that pension before April 2015 are close to zero.

After that, and assuming you're 55, 25% would be tax free and the rest taxed at your margin rate, so a sliver at 20% and the rest at 40%.

You really need to be looking elsewhere for this money,

dunstonh

but they won't let me, so it's just sitting there.

It wont be just sitting there. It will either have retained benefits or it will be subject to investment returns.

I think I can cash in my mortgage and pay 55% tax, but as I earn £37k would this put me over the 40% tax bracket or is it not linked to my earnings?

You are willing to give up over half the pension value to break the tax laws as well as using a scam company to do this (as no genuine company would)?