Work Pension Dilemma

stooey

This is my first try at the site's forum, hoping this is the right way to start a new one?? (If not, please tell me how!!)

I've recently been made redundant and have accumulated a work pension pot of around £43k - this fund was wholly paid into by my ex employer. Although a few years off 65, I hope to continue working, but what should I do with this fund? If I do find other employment and a new employer won't pay into this company's scheme, should I continue to pay into it myself?
I have another private pension scheme, is it beneficial to transfer into this?
Any help would be appreciated.

jamesd

Assuming it's a defined contribution scheme, not defined benefit like final or average salary, the general approach is:

1. select the investments you want to use.
2. look to see which scheme allows you to use those investments with lowest cost.
3. transfer the money from others into that scheme.

This gets you the investments you want at the lowest cost. Lowest cost could be the personal one or a work one.

Since you're apparently 55 or older you can also consider whether there is advantage to you in taking pension benefits now. This has two disadvantages and several potential advantages:

1. There's a 55% tax charge on inheritance of the pension pot by a person who isn't a spouse or legal dependent putting it into a pension pot. This doesn't apply until age 75 if you haven't taken any benefits. Life assurance can cover this if it matters to you.

2. There's a charge for a GAD calculation every three years, £75 at a number of low cost providers.

3. You can take the income and reinvest it into another pension. This lets you accumulate a second tax free lump sum, magnifying the benefit of using a pension.

4. You can take the income and invest it outside a pension, perhaps within a stocks and shares ISA. This has the advantage of building up a pot that isn't subject to the GAD limit on income drawdown income from a pension. It can be useful if you plan to retire before state pension age or for some other reason need an income above the GAD limit level in the early years.

5. If you don't need capital outside the pension you have the option of reycling the lump sum into more pension contributions, subject to the limits that apply to doing this. Check those limits if this interests you. This has the advantage of pension tax relief on money you didn't even pay tax on and you'll get some of it back as a lump sum later. Still reduces the money you have outside the pension, though.

6. The percentage of the lifetime allowance that is used is calculated at the time you first take benefits from a pension pot. Then the money can grow without limit later, without using more of the lifetime allowance. If you're getting anywhere close to the lifetime allowance this can be particularly useful.

If a new employer won't pay into a pension scheme it's probably best to prioritise ISA and non-pension investing, except for any money on which you are paying higher or top rate tax.

Whatever else you do, do be sure to invest the money just as you would in a pension, so you don't lose out on the compound growth of the investments.

stooey

Thanks very much, lots to consider here then!

atush

How much redundancy money will you get? Some times it is tax efficient to put some of it in the work pension.