Can I transfer to a new scheme and then draw money out?

franchesca

Yes I am employed but only part time now as I had breast cancer and am still lacking in energy and I only earn around 5,000pa. I assume the other £5000 of my allowance would be taken into account but aren't sure.
I retire in 4 years and I have another pension with my current employer as well as a full state pension which means I will have more income than I do now. My husband is several years younger and is in full time work.
We have also considered downsizing but our house isn't that big and in our area, by the time we'd paid costs, we wouldn't gain very much. We have a large garden here and save a lot growing our own food which also has to be considered. We don't really want to move either as we have a nice community around us who were very supportive when I was ill which is worth a lot.
I have pondered many different options and the best one would be to get this lump sum. If I took it as a pension it would be a very small amount and would be better used to pay off what I owe and be debt free in retirement.
Does anybody know if the rest of my yearly tax allowance(£5,000) would allow me to get this tax free?

molerat

Yes, any pension lump sum is income for tax purposes and your unused allowance can be set against this. Any excess tax deducted - tax will be taken at source by the pension company in accordance with current legislation - will need to be reclaimed from HMRC.

atush

Basically, if yu earn just 5K, and your allowand is 10.6K, then you could draw up to 5.6 K extra per annum w.o paying tax until you reach SP age.

I would however point out drawing more for tax purposes is all well and good, but if you spend this extra rather than saving it, your income will drop severely in old age w.o savings to compensate.

So while still working I'd be inclined to save that extra income in a S&S isa to provide income in years to come. Or even dare I say into another o=pension to get a boost of tax relief Does your PT job pay into a pension for you?

redux

Before considering the pension, if you currently work 16 or more hours a week, or could do so, read about working tax credit.

agarnett

Hi OP

Unilever was obviously a very good company to work for years ago. How many years did you pay in, and when did you leave? These facts could make a difference on whether it really is worth trying to release the cash in the scheme just yet.

Is the pension scheme essentially unchanged since you left it?

I assume that the £18,000 figure you mentioned is a transfer value quote that at some point you have asked for? Was that recent, or an old quote?

I ask these questions because I too am of an age, and am a deferred member of a very old DB scheme which still exists. Over the years I have asked for transfer values. I do now worry about the strength of my old employer and whether they will continue to survive and thus sustain my old pension scheme. In that regard I am guessing they are less robust than Unilever. Nevertheless, thus far I have left my involvement in the scheme untouched.

Some of the best old schemes contained very interesting inflation protection guarantees which may operate on your final (leaving) salary in order to keep it up to date with real money values. The older the scheme and the earlier your leaving date, the more likely those inflation protections will still be causing the cost (to Unilever) of your Unilever pension promise to be escalating constantly, and depending on your actual leaving date, relatively speaking, those guarantees could be costing Uniliver much more than more recent leavers deferred in the same scheme who may not benefit from %age guarantees of the same size as yours each year. It could mean that every time you ask for a transfer value, it is likely to have increased healthily over the last, and I think it may also mean that yours could be increasing faster than someone who left a few years after you.

If you have not asked for a transfer value lately, you may be very pleasantly surprised. The transfer quote on mine 25 years ago was £10K. My leaving salary 25 years ago was £15K. Now the transfer value has climbed well into six figures.

But looking at the reasons why it has climbed into six figures when Defined Contribution pension funds have languished with very mediocre performance over the last 15 years at least, is where you should perhaps look closest before you stop the thing and cash out. It is possible of course that the Unilever scheme you are in does not contain bombproof guarantees that are still costing Unilever significantly to maintain.

There are clearly SIPP providers out there who will "advise" you against cashing out of good DB schemes, but will be fully prepared to let you sign to disregard their advice and create a new SIPP with them, providing the means to draw down cash from the demise of your DB scheme.

But would you be cutting off your nose to spite your face? I also had half a plan to use the cash I could release from mine, but I think I am now going to keep the old DB scheme as the best remaining pension investment I have, even though it means carrying debts for longer.

As long as you fully understand its long term costs and implications, I say it is always worth considering keeping the flexibility of existing debt at low interest rates in order to buy you time to grow well performing investments elsewhere (like a DB pension).


You may already have done enough to persuade yourself that it is a no-brainer to eradicate the debt (if you are still incurring significant interest as part of the DMP). However, it is worth analysing carefully before turning off the life support system on the old pension (because that is what Unilever will probably have been providing - a kind of inflation protection support that may still be maintaining the real money worth of the original pension promise based a set fraction of your leaving salary years ago increased to its present day equivalent).

Because of very robust inflation protection written into typical old scheme rules, I think I am right in saying that in some cases, if you are in one of those old schemes for say a 5 year period ending 25 years ago, you are just as well off today from those five qualifying years, or even better off, than someone the same age as you who has just spent the last five years doing the same sort of job as you did 25 years ago, and has been lucky enough to have been (unusually!) enrolled in a DB scheme from 2010-2015!

I may be way off with your own actual qualifying years of course.

You will no doubt be trying to do some comparison sums, especially if your DMP includes a very low rate of interest - in which case it just might prove to be worth keeping the debt and pension where they are for a bit longer yet.

franchesca

Hi Agarnett,
I was paying in for 6 years and yes it is a good pension but still would not pay a lot per month. I have thought about the points you raise but I am planning to offer my creditors a full and final payment if I have a lump sum and if accepted this would save me more in the long run. I would of course find out first if this would be acceptable to them. I have to draw it out by my pension age anyway whatever I do.
I have asked for a transfer value but not yet received-they said it would take a few weeks. I am guessing the pot is around 18,000 as the max they have offered in cash is £4,500 and this is 25% so I just assumed the transfer value would be the same-we shall see.
I am just exploring things at the moment as my main aim is to pay our debts off as then I know we can manage when I retire and I won't have to worry so much about it.
Thanks for your input.