pension /sp2 help

frederico01

I really could do with some help please


hubby 58 worked all his life so has 41/2 years state pension contribution's

he has a pension plan and sp2 replacement plan with Scottish widows

pension plan Transfer value £1,276 started 1994 retirement age for this plan 60 (we have no idea where this pension comes from and we don't pay into it )

SP2 Replacement plan transfer value £42.898 started 1993 retirement age for this plan 65 (don't pay into this either)


he was made redundant in march (now employed ) and has a works pension scheme with legal and general transfer value £9.286 in 2011 (cant find this years statement )


can he move them all to 1 pension provider ?

I'm 90% sure he opted out of serps I assume this SP2 Replacement plan is instead of serps (am I correct)?

what are (if any) the implications to his state pension because he opted out of serps ?



don't know who he has been talking to (probably some random bloke he works with) but he want to draw 25% of his full pension pot now

Because of a personal family matter I understand why he wants to take 25% now and stash it away where we have instant access to it and I agree with him in principle however I need to know

can you take money out of sp2 before he is 65
how to go about releasing the 25% now

and if this will affect his state pension because most of his pension is sp2

Thanks

jamesd

S2P replaced SERPS. Both pay into the Additional State Pension part of the state pensions.

His state pension statement will say how much he has accumulated in the various state pension pots. One of those pots is "Additional State Pension" and this is the one that does not grow except due to inflation while someone is contracted out. The Basic State Pension part continues to go up for each year you work up to 30 maximum. That will increase to 35 maximum under the new flat rate cut to state pensions for employees proposal.

He can combine the three pension pots. It is worth asking whether there are any guaranteed annuity rights because those are usually very valuable. If there is a GAR then it would probably be a very bad idea to touch that pension until the date at which the GAR can be used to buy an annuity.

Since he is 55 he can take 25% from any personal pensions tax free. That includes money in pension pots that were originally built up from contracted out payments, like that S2P replacement plan. For the rest, he can use income drawdown to leave it invested. He can either take an income or not from this part. He could also buy an annuity with the 75% but he's way too young for that to be a good idea.

Nothing he can do with these pension pots now will have any effect at all on his entitlement to Additional State Pension. That effect already happened during each year he was contracted out and didn't get extra added to his Additional State Pension entitlement for those years.

Under current rules he continues to get an increase to his Additional State Pension for each year he works. The flat rate plan would cap that once he has accumulated enough in Basic and Additional State pensions to get £144 a week from them. He wouldn't lose any he's already got rights to above that level.

If he was to die before taking any lump sum or income, 100% of the pension pot value could be paid out to whoever he nominated tax free. After taking either, 100% (of the 75% if he tool the lump sum) can go into the pension pot of a spouse tax free but to pay anyone outside a pension pot is done after a 55% tax charge. If this change matters, buying life assurance is one way to cover the difference.

Even if he doesn't need the income it can be useful to use income drawdown and take an income, then pay the income into another personal pension. That starts to accumulate another 25% tax free lump sum, so there is a tax gain from doing it.

dunstonh

Because of a personal family matter I understand why he wants to take 25% now and stash it away where we have instant access to it and I agree with him in principle however I need to know

That seems like an unsuitable justification for doing it. Currently it is sitting in the pension tax free, outside of the estate and with full death benefits. Commencing the pensions now will start an income based on age 58 (a low rate compared to say age 65). That income will be taxable and the lump sum will be based on current value. Not on the value when he actually retires.

An adviser would have a hard job justifying the reasons you are using and it would probably be classed as a mis-sale.

frederico01

jamesd wrote: »

S2P replaced SERPS. Both pay into the Additional State Pension part of the state pensions.

His state pension statement will say how much he has accumulated in the various state pension pots. One of those pots is "Additional State Pension" and this is the one that does not grow except due to inflation while someone is contracted out. The Basic State Pension part continues to go up for each year you work up to 30 maximum. That will increase to 35 maximum under the new flat rate cut to state pensions for employees proposal.

He can combine the three pension pots. It is worth asking whether there are any guaranteed annuity rights because those are usually very valuable. If there is a GAR then it would probably be a very bad idea to touch that pension until the date at which the GAR can be used to buy an annuity.

I will look into this thanks

Since he is 55 he can take 25% from any personal pensions tax free. That includes money in pension pots that were originally built up from contracted out payments, like that S2P replacement plan. For the rest, he can use income drawdown to leave it invested. He can either take an income or not from this part. He could also buy an annuity with the 75% but he's way too young for that to be a good idea.

don't want to draw down was hoping (if we go ahead with taking 25 % now) I could just leave the other 75% till he retired

Nothing he can do with these pension pots now will have any effect at all on his entitlement to Additional State Pension. That effect already happened during each year he was contracted out and didn't get extra added to his Additional State Pension entitlement for those years.

Under current rules he continues to get an increase to his Additional State Pension for each year he works. The flat rate plan would cap that once he has accumulated enough in Basic and Additional State pensions to get £144 a week from them. He wouldn't lose any he's already got rights to above that level.

If he was to die before taking any lump sum or income, 100% of the pension pot value could be paid out to whoever he nominated tax free. After taking either, 100% (of the 75% if he tool the lump sum) can go into the pension pot of a spouse tax free but to pay anyone outside a pension pot is done after a 55% tax charge. If this change matters, buying life assurance is one way to cover the difference.



Even if he doesn't need the income it can be useful to use income drawdown and take an income, then pay the income into another personal pension. That starts to accumulate another 25% tax free lump sum, so there is a tax gain from doing it.

thanks for this it gives me a lot to think about

frederico01

dunstonh wrote: »

That seems like an unsuitable justification for doing it. Currently it is sitting in the pension tax free, outside of the estate and with full death benefits. Commencing the pensions now will start an income based on age 58 (a low rate compared to say age 65). That income will be taxable and the lump sum will be based on current value. Not on the value when he actually retires.

An adviser would have a hard job justifying the reasons you are using and it would probably be classed as a mis-sale.

believe me I've thought long and hard about this and had a lot of sleepless nights(not just because its going affect our pension but the actual reason why he wants the money ) as I said in principle I agree but im not to happy about doing it now


Personally I want move the lot to one pension and wait and see what happens and then if needed take the 25% I would think /hope it would only take a few weeks to release the money

As a rule he usually listens to me when it comes to our finances having said that it is his pension and if he decides to go ahead now I cant stop him

jamesd

He can use drawdown and take no income. That would just leave it until he retired.

But that is not the best choice after taking the 25%. Best is to take the income using drawdown (not annuity) and pay it into a pension. That gets tax relief again and starts accumulating another 25% tax free lump sum. So he gains a bit on the tax.

Worst choice is take the lump sum and then buy an annuity. As dunstonh wrote, that would lock in the low income level available at his age and in today's poor annuity market for life.

If it turns out that the 25% lump sum isn't actually needed he could also pay that into a pension. There are limits on recycling the 25% tax free pension commencement lump sum but he's within them assuming he has earnings of the required £13,000 or so.

Can't really say anything much about whether this is the best way to get the 25% because we don't know what it's for or what other resources are available.