pension wind-up

Stec1603

Hello

Can someone make sense of this for me as I'm not good with this sort of thing. Many years ago I took out a pension with my 1st employer.
I've had notice that this scheme is to be wound-up.
I left the company over 5 years ago and my pension was frozen at that time. I've still got statements etc and the value of the pot is 8850. The letter says I may be able to take this as a lump sum?
This would be my preferred option, but what would I be entitled to, just my contributions less tax, or the value if the investment as it currently is?

Thanks
Ste

McKneff

Your contributions only, less tax and NI.


You would be far better transferring the amount into another pension, it will grow and grow and grow.
You would be chucking an awful lot of money away...

Stec1603

Thanks for the reply, much appreciated.
Current company pension doesn't allow transfers in.
I'm not going to waste it I'm paying off other debt with it.
My current pension will be more than enough for me I'm sure.
Rather pay off existing debt. On another note, if I paid in 5k and the value of the investment is 8850 why would I only get my contributions?

Colin_Hunt

Transfer to a SIPP, and [STRIKE]try to[/STRIKE] learn how to control your destiny.

McKneff

you aren't wasting the money you will get back but you are saying no thank you to all the money your employer and its growth has put into the fund and giving a chunk back to the HMRC and Ni


There may not be an State Penson when you get to retiring age, every little helps, and this will have grown into a substantial sum by then.

hugheskevi

This sounds like a Winding-Up lump sum payment, not a short-service refund?

My understanding is that under a Winding-Up lump sum, 25% of the pension pot of £8,850 would be paid out to the OP tax free and the remaining 75% paid out and added to taxable income for the year (although that 75% could be put into another pension to avoid tax).

Could you provide any references to deduction of employer contributions or National Insurance on winding-up lump sum payments?

Stec1603

No mentions of deductions. This is the 1st notification in the winding up process. I have 4 options, transfer to alternative policy.2 retire (30years to go so that's a no then),3 transfer to company's new plan (if your an employee, which I'm not) and 4 winding up lump sum. The default is transfer to a pre set up policy with standard life. Further info to follow in May.
Man thanks for your help with this guys.

molerat

On winding up you will receive the full amount less tax at 20% on 75% of the total. Whether that is a wise choice is another question.

kidmugsy

molerat wrote: »

On winding up you will receive the full amount less tax at 20% on 75% of the total. Whether that is a wise choice is another question.

Insofar as it lets the OP recycle the surplus over his debts into a pension again and build up another tax-free lump sum, it might be pretty attractive.

xylophone

http://www.hmrc.gov.uk/pensionschemes/tax-basics.htm#10

"Trivial and winding up lump sums
If your pension pot is small the whole amount may be paid to you as a lump sum. This type of lump sum is often called a trivial lump sum - more in the link below.
You may also have a pension pot of up to £18,000 paid to you as a lump sum if both the following apply:
your workplace pension scheme is winding up
your employer isn't paying into another pension scheme for you
These lump sums are taxable. How much tax you'll pay depends on your overall taxable income after your tax-free allowances. Your pension scheme administrator will take off tax using the PAYE (Pay As You Earn) System."

The OP might be required to pay more than 20% Tax, depending on his personal situation?

kidmugsy

xylophone wrote: »

The OP might be required to pay more than 20% Tax, depending on his personal situation?

In which case he'd presumably want to contribute enough to a pension to avoid that?