Advice please

Pickle29

Hi
Hubby will be 55 later this year and we are thinking of cashing in some of his pension to pay off our DMP.

The situation is
Pension 1 ex company pension value £3.5k
Pension 2 ex company pension value £1.6k
Pension 3 private pension value £40k
I understand that from 55 he can take 25% of the total and the rules have changed and are changing again in April 15.

What can he take when he is 55?
25% from each tax free?
Can he take the total of the pots under £10k
Can he take 25% each year tax

What can he do if he waits until april15?

Any advice, much appreciated, thank you

atush

HJe can take the 2 small posts at 55, but he can only have 25% TF. The other 75% will be taxed at his highest rate. I make that 3825 that will be taxed- what rate does he pay? If basic rate the tax will be over 900 quid. Is that worth it? Might be best to just take the 25% TF from each pension

From April you could take the whole 40K too, but with his income that 30K of taxed money will push him into Higher rate tax then you end up paying 40% tax on the 30K?

How much is the debt? have you tried snowballing? It sounds like you want to use your retirement money to pay off debt but what happens after? More debt? Will you ever be able to retire or will you have to work to 80? A bit worrying.

greenglide

You have said that pension 1 and pension 2 are "ex company pension".

Are these Defined |Contribution schemes which have an associated "pot" or are they Defined Benefit schemes (generally Final Salary)? DB schemes tend to quote the money they will pay out per month or per year and are much more valuable then DC schemes.

You do need to check.

Pickle29

Hi
Thanks for the quick response
The debt is currently £52k but we are paying it off thro sc, with approx 6 years to go

He is just about to start a new pension with his current employer, which will help and also once the debt is paid off, we can overpay the mortgage to get that off sooner and release money to save instead of paying debts. We know we can't access any form of credit, nor do we want to! hence the desire to get out of debt and start saving.

Green glide - I am not sure if they are DB or DC, they are definitely not final salay, we have not had anything since he left both companies. One says he will get £600 per year, the other doesn't say how much just a total value of what he has paid in. Sorry.
Should he get annual statements?

Ps he is a basic rate tax payer, but if he took the full amount and it took him over the 40% tax threshold are you saying he would pay tax on the 75% at the higher rate?

So much to think about!

atush

Yes he could pay the higher rate of tax on some or all of it, depending on his annual salary

If you do end up taking these pensions to pay off the debt sooner, then don't overpay the mtg but instead both of you need to put as much into pensions as you can afford (with a cash safety net so you don't take on mroe debt).

As it will take you some time to build up enough to replace what you spent on paying off the debt.

What is your own pension situation like? have both of you gotten a statement of contributions in regards to your state pension?

Pickle29

Hi
We are looking at options at the moment, trying to get as much info as we can.

I have a frozen final salary pension with 14 years on a good salary and currently have 12 years in LGPS final salary so combined I'm relatively ok

We really want to pay the debt off as as we can so that we can start saving again (redundancy 4 years ago didn't help!) and we can see a light at the end of the tunnel but I'm impatient and saw this as an option to clear the debt sooner- not reckoning on all the tax implications!


If he took 25% tax free in October, could he take the remainder 25% tax free each year thereafter or is it a case of 75% taxable or leave it where it is?

Thanks

Ps neither of us has a state pension forecast - thought we were too young (I'm 50)

xylophone

thought we were too young (I'm 50)

No - see here https://www.gov.uk/state-pension-statement

See also https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

Before you do anything, find out whether the two small company pensions are defined benefit.

See also http://www.hmrc.gov.uk/pensionschemes/take-pension.htm

and https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/301563/Pensions_fact_sheet_v8.pdf

atush

A forecast just helps with planning- esp as regards what will be your 'foundation amt' incl S2P.

Are you still in the LGPS? If so, you are sorted with 26 years contributions into FS pensions and going up. But, do look at the scheme age of each pension.

Should you want to retire earlier, you should start a DC pension for yourself as soon as you can afford it. As you can draw that so as to keep from drawing your DB pensions early/reduced.

As for the OH, you only get one bite of the 25% tax free cherry. All the rest you draw out will be taxed at the highest rate. So if your OH pays BR tax, and has a salary of 30K, he can ony draw another 12K before he has to pay higher rate tax. So you'd be best to draw the larger pension down in annual tranches over a few years, so as to minimize tax.

How much more can he earn w/o paying HRtax?

Triumph13

Pickle29 wrote: »

Hi
If he took 25% tax free in October, could he take the remainder 25% tax free each year thereafter or is it a case of 75% taxable or leave it where it is?

You only ever get 25% tax free. The remainder is always taxable income however you take it - subjetc to your annual Personal Allowance.

The other things to consider are the interest rates you are paying on your DMP and your Mortgage as the lower they are the less it will be worth raiding your pesnions to try to clear them.

Pickle29

Wow! so much more to think about and sorry but I don't understand some of the abbreviations!
Xylophone - thanks for the information, I will read up on the state forecast later

How do I find out if they are defined benefits? Should we ring them? Is it just that simple question or do I need to ask more because OH won't know what to say and I don't!

Atush - what is S2P?
Also, yes I am still in LGPS but the other final salary is frozen ( I was TUPEd out so they mirrored the LGPS but then froze it just as I was made redundant). I will look at the scheme age though - thanks

With regard to OH he currently earns £23k, so are you saying he could draw down just under £10k per year to keep within 20% tax so he doesn't go over into 40%?

Triumph - brilliant point! We are only paying interest on 2 of our debts and the rest are frozen! Never thought about that!

Thank you everybody, It gives me lots to think about and I'm beginning to reconsider already!

xylophone

final salary is frozen

Deferred? If so, it is increasing in deferment. See your scheme booklet.

How do I find out if they are defined benefits? Should we ring them? Is it just that simple question or do I need to ask more because OH won't know what to say and I don't!

Do you have a booklet for one or both? If not, just ring the administrator(s) and ask whether the pensions were defined benefit or defined contribution/money purchase.

See https://www.sunlife.ca/Canada/ataglance/Library/Investments+-+Investing+Information/Defined+Benefit+vs+Defined+Contribution?vgnLocale=en_CA for explanation.