Can I cash in my pension?

atush

Take the 25% tax free LS, and use that to pay off part of your mtg if you like. But paying 20-40% tax on the other 75% of it, to pay off a mtg costing you less than 1% is financial madness extreme enough to be financial stupidity.

In fact, if you dont have 25K of cash savings coming up to retirement (which you could use to pay off the mtg) i'd be boosting my savings instead of paying off such a small cheap mtg.

jamesd

Golfoneliners wrote: »

Re. your point on the mortgage, while this makes sense, I really just want to be rid. It probably does not make economic sense as my current rate if 0.16% above base!

You're right, it makes no economic sense at all. You could take the pension money and put it into a current account or savings account and be better off, let alone using investments.

If you want a better plan, make more pension payments and eventually use the tax free lump sum from the combination to clear the mortgage just from the pension tax relief. Given the value of the current 25K you could even recycle its lump sum into new pension contributions to get a second bite at its tax relief.

I could clear my mortgage today within a day if I wanted to. There's no point. It'd make me worse off because my savings and investments combined grow by more than the mortgage cost.

Talyn

jamesd wrote: »

If you want a better plan, make more pension payments and eventually use the tax free lump sum from the combination to clear the mortgage just from the pension tax relief. Given the value of the current 25K you could even recycle its lump sum into new pension contributions to get a second bite at its tax relief.

I'd be careful regarding the above. Reinvesting your tax free cash lump sum into another investment with tax relief (such as another pension) is called Recycling and is not allowed by the HMRC and may result in large Tax/Unauthorised Payment charges. If your pension provider is nice they should even give you a Recycling Declaration form for you to sign before they pay out to make sure you have read and understood the implications. See info on HMRC Recycling Rules here http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm04104900.htm

mgdavid

Talyn wrote: »

[
I'd be careful regarding the above. Reinvesting your tax free cash lump sum into another investment with tax relief (such as another pension) is called Recycling and is not allowed by the HMRC and may result in large Tax/Unauthorised Payment charges. If your pension provider is nice they should even give you a Recycling Declaration form for you to sign before they pay out to make sure you have read and understood the implications. See info on HMRC Recycling Rules here http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm04104900.htm

No, the OP is still employed. They would be living off the lump sum and putting earned income into the new pension.

jamesd

Talyn wrote: »

Reinvesting your tax free cash lump sum into another investment with tax relief (such as another pension) is called Recycling and is not allowed by the HMRC

It is not true that recycling pension lump sums is not permitted by HMRC. The amounts can be limited but that's all.

The total pension pot size here is £25k,. A 25% tax free lump sum from that is below 1% of the lifetime allowance and hence within the limits on lump sum recycling. It's also clear that there was no pre-planning of the recycling because the poster probably only just learned of that possibility from my post.

I'm thoroughly familiar with the HMRC rules in this area. The relevant limit is the highest of:

1. An unlimited amount of recycling if it wasn't pre-planned.
2. Up to 1% of the lifetime allowance within a 12 month period. The lifetime allowance is currently £1.25 million so at least £12,500 of recycling is permitted even if it was pre-planned.
3. An increase of pension contributions "because of the lump sum" of no more than 30% of the lump sum, counted over the two years before taking it, the year it was taken and the two following years.

Be below any of those limits and the recycling is fine.

For additional pension contributions there's a chance that the 1% limit could be exceeded in the future but HMRC is explicit that planning of this sort is fine: "A pension commencement lump sum might be an integral aspect of the increased contributions in that one of the reasons for increasing contributions is to receive a larger lump sum. The recycling rule will not apply in these circumstances unless the individual intended to use that pension commencement lump sum as the means of making those increased contributions, whether in a direct or indirect way.". What I described was such a method: increasing pension contributions to get an increased pension lump sum, not planning to recycle that future lump sum.

Teaandscones

Golfoneliners wrote: »

I wonder if anyone can help?

I am 55 years of age and am currently in a very good final salary pension scheme with my current employer, which I am planning to be with until I retire aged 66.

I have an old personal pension pot that is currently dormant and has been for around 20 years worth around £25k; which I would ideally like to cash in and use the proceeds to pay of the balance of my existing mortgage.

Is there any way this can be done without having to affect my current final salary pension scheme, as I do not want to affect this in any way shape or form?

Thanks in advance.

I think you need to be careful if you wait until April. My understanding is that the annual allowance will be reduced to £10k p.a. rather than the £40k p.a. normal limit for those who access their full pension. Not a problem with just taking the 25% lump sum. This could affect someone in a good DB scheme.

jamesd

Yes, the reduction to £10k would apply if it was all taken after 6 April 2015 and it is not possible to take it all before then. Defined benefit pension contributions are not affected by the reduction, though.

A better way to go about it is to enter capped income drawdown this tax year. That will allow taking of the 25% tax free lump sum plus the GAD limit amount from the remaining 75% each tax year without causing the reduction.

System

i have a few questions
i am taking my small pension pot in full on april 6 it is around 3,500 pounds
i am on benefits which are around 5000 a year
will i have to pay any tax on my pension? if so,how much?
if,as the sun says, the pension provider pays something to the taxman, how do i claim it back if necessary,
and how long might that take?
finally, will the 3500 affect my benefits?

atush

You havea PA for this year of 10K, and next year of 10,600. So your pension plus your benefits will be less so no tax to pay.

what you will do the next year is anyone's guess?

dont know about the benefits as i have never claimed any but we have a benefits forum? Claimed as savings not, claimed as income maybe?

Pension contributions get automatic Basic rate tax relief so you should not have to inform HMRC

xylophone

http://www.entitledto.co.uk/help/savings

Seems relevant.

With regard to your pension, you are allowed 25% tax free with the balance taxed at your highest marginal rate.

It would appear that you do not pay tax and would not even with the 75% of the pension added on.

You might find that the pension company tax the 75%.

If so you would need to reclaim from HMRC.

See http://www.thisismoney.co.uk/money/pensions/article-2919917/How-avoid-overpaying-tax-pension-cash-April.html