Pension at 50 ?

paul2468

I will reach the ripe old age of 50 this year...i am sure that i read something saying that you could take part of your pension at 50.
I served 14 years in the army and paid into the pension....and at the moment i am paying into a stakeholder pension at work....can anyone tell me anything about this ?

dunstonh

if you take it after 50, you dont get a second dip into again in the future when its worth a lot more. You should only dip into it if you really really need the money. Otherwise it is short term gain and long term loss.

EdInvestor

You can take the 25% tax free cash at 50 ( 55 from 2010) and leave the rest of the pension invested to grow until you need it later.

If you have too much money in pensions (which are taxed in retirement) it might be sensible to switch that money over into an ISA (which is not taxed in retirement) now so it can grow in the alternative tax wrapper ( the investment opportunities are the same).

The ideal amount of taxable pension income in retirement per person is 10k (which is then almost tax free), with the rest in ISAs.

dunstonh

If you have too much money in pensions (which are taxed in retirement) it might be sensible to switch that money over into an ISA (which is not taxed in retirement) now so it can grow in the alternative tax wrapper ( the investment opportunities are the same).

Pensions get tax free growth, ISAs get tax free growth. No different. The same investment funds are available with both.

However, if you fund is £20k now and you take 25% you will not be able to get another 25% out later. So, in 15 years time when you are 65 and at pension fund could be worth 60k, you wouldnt be able to get 25% of that higher figure. So, using this example, do you want £5000 now or £15,000 later?

jamesd

You want 5000 now if you have 5000 of your ISA allowance unused. You want 15000 later if you have already used the ISA allowance.

EdInvestor

There's no difference in the amounts, just in the tax arrangements.

Say you have a fund of 28k. You take 7k in tax free cash now and put it in your maxi ISA. Both the ISA and the remaining pension grow by 7% a year, so in 10 years you have a pension fund of 41,310 and an ISA fund of 13,770, total 55,080.

If you leave the money in the pension at 7% it will also grow to 55,080, and the tax free cash will also be 13,770. But you will then have to waste two years' ISA allowances putting it in, when you could have organised it years ago and used only one.

Note also that you can take an income from your remaining fund after 50 if you like as well. You have to pay tax on this (all pension income is taxable), but some people like to do this and then reinvest the money in their ISA.You can take up to 120% of the annuity rate.

It's quite a good way to reduce the amount of taxable income after retirement if you need to do that ( eg because you are close to the high rate band, are close to the age allowance clawback level, or could benefit by getting total pension income below around 10k and thus virtually tax free).

Some people prefer to leave the money in the pension, as it will pay out tax free as a death benefit before vesting. If you vest it (take the TFC early) and then die before you're 75, your heirs will still get the remaining fund, but minus a 35% tax charge

Obviously which arrangement is best will depend on personal circumstances.

Andy_L

Remember guys the Army pension is unfunded. There is no pot of money with paul2468's name on it, its tied in by the scheme rules. With 14 years service he can't get anything from it until he's 60 when he'll get the pension & gratuity (army speak for lump sum)