Pension scheme winding up

L_D

Hi, I'm just looking for a bit of advice or guidance in relation to my pension please.

The pension scheme I was in at a previous employer is winding up and I have had a letter confirming what my options are, these are:


1. transfer to a default buy-out policy
2. transfer the fund to the pension I have with my current employer
3. take the lump sum (I do meet the eligibility criteria for this)


I don't want to go with option 1 and I am checking with my current pension provider if I can transfer the money in, but based on the trouble I had getting this pension set up in the first place, I'm worried this won't go as smoothly as it should. Also I don't see me being with this company for any more than another year or 2 (and I've only been here 1 year so far) so I won't be paying into this pension for ever.


Ideally I'd like to take the lump sum and start my own private pension (in addition to the pension I have with my current employer). At the moment I have around £50 spare per month that I can pay into this private pension, hopefully this will increase next year. Is this a sensible idea? Is there a need for someone to have both a private and employer pension?


Also, are there any good guides on the internet that I can read to learn a bit more about pensions in general? I am not clued up on this stuff at all but would like to be a bit better informed.


The transfer amount of this pension is £1,758.84 and the lump sum amount after tax is £1,495.01. So not huge amounts, but I still want to be sure I am doing the right thing. Not sure if it is relevant but I am 35.

Your_Hero

L_D wrote: »

Hi, I'm just looking for a bit of advice or guidance in relation to my pension please.

The pension scheme I was in at a previous employer is winding up and I have had a letter confirming what my options are, these are:

1. transfer to a default buy-out policy
2. transfer the fund to the pension I have with my current employer
3. take the lump sum (I do meet the eligibility criteria for this)

I don't want to go with option 1 and I am checking with my current pension provider if I can transfer the money in, but based on the trouble I had getting this pension set up in the first place, I'm worried this won't go as smoothly as it should. Also I don't see me being with this company for any more than another year or 2 (and I've only been here 1 year so far) so I won't be paying into this pension for ever.

Ideally I'd like to take the lump sum and start my own private pension (in addition to the pension I have with my current employer). At the moment I have around £50 spare per month that I can pay into this private pension, hopefully this will increase next year. Is this a sensible idea? Is there a need for someone to have both a private and employer pension?

Also, are there any good guides on the internet that I can read to learn a bit more about pensions in general? I am not clued up on this stuff at all but would like to be a bit better informed.

The transfer amount of this pension is £1,758.84 and the lump sum amount after tax is £1,495.01. So not huge amounts, but I still want to be sure I am doing the right thing. Not sure if it is relevant but I am 35.

Those numbers don't look quite right, check this again?

By taking the lump sum you would need to pay 20% tax back, plus NI. Tempting as it is to take the cash, it is normally unwise.

To decide if it's better to transfer this to your new employer or arrange your own personal pension would depend on the type of scheme your employer has in place.

Also, you may wish to enquire they will match your higher contributions first and maximise this. It's free money after all. And finally, your employer scheme may have a better deal than one you can find in the market.

xylophone

If you can't transfer in to your employer's scheme, you could transfer in to a new personal pension and continue to pay in to that.

http://www.adviceguide.org.uk/wales/debt_w/debt_pensions_e/debt_starting_a_pension_e/choosing_a_personal_pension.htm

http://www.cavendishonline.co.uk/pensions/transfers-and-repensioning/

RichandJ

Your_Hero wrote: »

Those numbers don't look quite right, check this again?

By taking the lump sum you would need to pay 20% tax back, plus NI. Tempting as it is to take the cash, it is normally unwise.

To decide if it's better to transfer this to your new employer or arrange your own personal pension would depend on the type of scheme your employer has in place.

Also, you may wish to enquire they will match your higher contributions first and maximise this. It's free money after all. And finally, your employer scheme may have a better deal than one you can find in the market.

WULS are different. They're more like triv comm or small pots where 25% is tax free & the rest is taxed.

kidmugsy

RichandJ wrote: »

WULS are different. They're more like triv comm or small pots where 25% is tax free & the rest is taxed.

Doesn't that mean that it would be more profitable to take the cash and reinvest it as a new pension contribution, thus earning a second tax-free lump sum later?

In other words the OP's original "I'd like to take the lump sum and start my own private pension" seems spot on, doesn't it?

Your_Hero

kidmugsy wrote: »

Doesn't that mean that it would be more profitable to take the cash and reinvest it as a new pension contribution, thus earning a second tax-free lump sum later?

In other words the OP's original "I'd like to take the lump sum and start my own private pension" seems spot on, doesn't it?

You are right. He could take the £1,495.01, pay that back into a pension and receive £1,868.76 gross. A small profit of £110 I guess.


If HRT or additional rate, it would be even more beneficial.

kidmugsy

Your_Hero wrote: »

A small profit of £110 I guess.

Can the OP be confident that taking a WULS won't constrain his ability to contribute to pensions later in life?

https://forums.moneysavingexpert.com/discussion/5026941

jamesd

It is always more tax-efficient to take a winding up lump sum than to use the transfer options. Use option 3. Anyone who gives other advice just doesn't understand how this works unless you're in one of the limited range of unusual circumstances that make transfer best.

Say you have £10,000 in the pension pot and are a basic rate tax payer. You take the lump sum and you get £2,500 as a tax free lump sum plus £7,500 taxed at 20%, total amount received £8,500. Now you pay this into a pension pot. You get 25% added to give you basic rate's 20% tax relief and that £8,500 becomes £10,625 inside the pension. If you have a workplace salary sacrifice scheme this is an even better deal because you can gain from the NI saving of salary sacrifice as well.

The effect of options 1 or 2 is to give you only £10,000 in the pension pot you transfer to when you could instead have £10,625 in it. Bad idea. Take the lump sum.

There is one main exception to this. When you will use the maximum £40,000 or pension tax contributions each year so you will never be able to pay the money into a pension again and get the tax relief. A similar case would be a person who is no longer working and who is already using their maximum of £3,600 a year. It's also likely to be better to transfer if the money when paid in again would cause you to go over the pension lifetime allowance.