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Help needed

edited 30 November -1 at 12:00AM in Auto-enrolment
4 replies 2.2K views
KakasnartaKakasnarta Forumite
2 posts
edited 30 November -1 at 12:00AM in Auto-enrolment
Hi hope someone can give me some info as don't really understand pensions that much any help would be appreciated.
Due to my current employer not giving wage increase for the last five years things are getting tight and can no longer afford to make pension contribution every month ,I'm in company pension and they pay equal amount each month into scheme...my question is can I stop making payments into scheme .or as I'm 58. Can I finish my pension and take early I know you can take pension early if you are certain age,but I have been told that if you take pension early your employer can take back his contributions he has paid into scheme is this correct as I don't want to lose out if he's able to claim back his contributions ,thanks for any help kaka

Replies

  • jamesdjamesd Forumite
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    There are two main cases to consider.

    1. A defined benefit pension, like final salary or average salary, the sort often used in the public sector. In these, the employer can take back their contributions if you leave within two years, returning just what you paid in after tax is deducted. After that you can keep the money in the pension pot and can take an income at whatever age the scheme rules allow it. This is probably not hte type you are writing about.

    2. A defined contribution or money purchase pension, one where you have the option to choose the investments from a range, even if you haven't chosen to do that. if there's a list of funds you could pick from, this is what you probably have. It's also the type most often used in hte private sector. typically you'd pay in a percentage of your salary and your employer would match that, up to a certain percentage. You probably have this type.

    For a defined contribution pension you can take a 25% tax free lump sum and income using Income Drawdown or by buying an annuity. Or you could use Income Drawdown and not take any income. If you were to do this, you could take the income and use the income to top up your income so you can continue to pay into the pension and get the extra matching money from your employer. it's potentially a good way to solve your money problem while not losing out on the tax relief or company match. You don't normally need to stop being in the pension to do this.

    After taking the 25% tax free lump sum, in your case - with apparently limited knowledge of investments - it would probably be best for you to buy an annuity to provide an ongoing income. We don't know enough about your eventual retirement income situation or other savings, investments and property or other high value things you own to give an opinion on what's actually best.
  • Hi thanks for reply I was thinking about taking the 25% and taking a monthly income from the rest ....I have been in the scheme for about 18 years was just worried that my employer could take back his contributions if I finished pension early the pension is with standard life
  • jamesdjamesd Forumite
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    No chance of the employer taking the money back after that long. It's just for short term employees, so tiny pension pots don't have to be tracked for a long time at costs that just wouldn't make sense.

    Your best bet now if this interests you is to either find an Independent Financial Adviser (IFA) - all three letters/words - from personal recommendation or via unbiased.co.uk. They can check values, check for special things like guaranteed annuity rates, which would be higher than current rates, as well as checking for the chance that your health might get you a higher income.
  • atushatush Forumite
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    I would reconsider taking it early. As it will reduce what you get later (whe you aren't working and need it) and you will have to pay tax on the income (which means you wont get all of it).

    Try other ways to reduce your outgoings (how long has it been since you changed your utilities company, your insurance, your phone or braodband provider) or bring in extra in other ways (you could take in a lodger and earn over 4K before you have to pay tax on it).

    It would even be better (but still not good) to stop paying in rather than taking them early. have you asked your employers HR dept what would happen if you stopped paying in (ie would you lose their payments in)? If so, perhaps you could just reduce them?

    If you are having a hard time now, you will have a harder time later when you retire on a lower income (because you took it early) with no savings (because you spent your Lump sum now).
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