How can I get money out of pension?

wotsthat

My heart sinks when I see threads with titles like this and they seem to be making up a larger proportion of the threads posted.

Isn't it time there was a sticky to make it perfectly clear that once a sum of money has been paid into a pension generally doesn't see the light of day again until retirement or death?

Is this something that the pension companies should make more clear as, it seems, that this fact is not being noted by a lot of people?

dunstonh

Is this something that the pension companies should make more clear as, it seems, that this fact is not being noted by a lot of people?

People wanting to draw money out of pensions are typically looking at plans they started 15-20 years ago. Can you remember conversations you had that long ago?

EdInvestor

I'd have thought there's quite a lot of confusion over more recent company pensions, especially as the rules for occupational schemes allow you to take your money out if you leave within two years, whereas with group personal pensions, once it's in, you can forget it until you're 55.

wotsthat

People wanting to draw money out of pensions are typically looking at plans they started 15-20 years ago. Can you remember conversations you had that long ago?

Most probably no. However, if someone had said to me 15 years ago that they had a brilliant idea for retirement saving that involved putting money into a scheme that the Government would only allow me to withdraw at retirement, with many strings attached, or death then yes I'd remember.

This leads me to believe that people buying pensions either have not had this properly explained by the person selling to them or there are an awful lot of people with terrible memories.

Given the number of people who ask on this forum how to get money out of a pension pre retirement I'd be minded to think of the former option.

Yes it's difficult to remember conversations that happened 15 years ago but even more difficult to recollect those that never actually happened.

EdInvestor

Other things that tend not to get mentioned include the fact that the pension income is taxed - and thus the "tax relief" is largely illusory - and that the capital will either be taken by an insurance company in return for an annuity income, or confiscated by the Revenue if there is any left over after providing the pension.

Oh, and they also control how much income you can take, to something a bit higher than cash, but not much.



I agree that it's very hard to see that anyone would voluntarily buy one of these products using his own money if its full features were honestly explained.

exil

"thus the "tax relief" is largely illusory "

to be frank, that is nonsense. It can be fairly easily shown that putting money into a pension scheme is, tax-wise, the same as putting it into an ISA.

And if you are a higher rate taxpayer and expecting not to be after retirement, the pension wins hands down.

There are of course pros and cons of ISAs and pensions and there is no "right answer" for everyone. But as far as tax is concerned there isn't really anything to favour one rather than the other for most taxpayers. And, fairly obviously, if you can afford to do BOTH you should. Or do you think once you've used your ISA allowance the rest should go into the building society?

wotsthat

to be frank, that is nonsense. It can be fairly easily shown that putting money into a pension scheme is, tax-wise, the same as putting it into an ISA.

I think that's the point being made; if the tax benefits of pensions (well hyped by pension companies) are the same as putting as putting money into ISA's then why choose the pension route where a Government treats the money as it's own and decides how you may, or may not, access it in the future.

And if you are a higher rate taxpayer and expecting not to be after retirement, the pension wins hands down.

Yes the tax benefits of pensions for higher rate taxpayers are better (as they are for ISA's). The sums are difficult - the total fund will be higher, other things being equal, but the ISA route gives free access to the final fund and the pension doesn't. The pension allows 25% of the fund to be taken tax free but the Government may take away this benefit in the future. Annuity rates may or may not improve in the future.

Maybe a more sensible way for a higher rate taxpayer to approach retirement planning is to save the max in ISA's and the balance over £7000, if they are lucky enough to have that sort of cash, could go in pensions. The Governent contribution limits are really quite generous so there's nothing to stop funds being transferred to pensions at a later date picking up full tax relief. That way the funds remain under the savers control - once they go into a pension they can't come out should an ISA route, with hindsight, have looked more favourable.