Releasing cash from pension

Money_saving_maniac

I have 2 small pension funds, one with Aviva and one with Scottish Widows. I am not paying into either.
Think it's about 4 or 5k in one and 7.5k in the other.
I'm 57.

As we are looking into moving house I'd like to get the cash out if we move. I do know one at least one of them allows this once over 55, as I asked when I joined up. I don't know if the other one has to allow it or whether it depends on the company. I know you can take 25% lump sum tax free. I know that the taxman allows 'trivial commutation' which I think these pots would fall under. i don't know whether the commutation means none of it is tax free.

I don't know what effect the 75% not tax free has on your tax situation, or how the tax is paid on it, or whether it has some negative effect on one's PAYE tax.

I was unemployed for several months last year and am probably due some amount of a tax refund if that is relevant. I am working now earning 25k.

Could someone help me with these questions?

jamesd

If one of them doesn't allow it you just transfer to a place that does.

You can take the 25% tax free lump sums without any negative consequences other than to ultimate retirement income.

If you take any of the remaining 75% your annual allowance for all pension contributions in your name will be reduced to £10k and you will no longer be able to carry forward from the previous three years. This includes both employer and your own contributions. Don't take any of the 75% if this may affect you.

The 75% is treated as normal taxable income in the year(s) in which you take it. So you'd pay 20% income tax on it at your current income level.

Given your situation it seems most simple to ask each provider to pay you an uncrystallised funds pension lump sum (UFPLS) for the whole pension pot. 25% of each payment will be tax free, 75% taxed and they will deduct the income tax. You may need to claim a tax refund, they should tell you how. If only 20% of the 75% was deducted there is no refund to claim, so just do that calculation to check.

woolly_wombat

Money_saving_maniac wrote: »

I have 2 small pension funds, one with Aviva and one with Scottish Widows. I am not paying into either.
Think it's about 4 or 5k in one and 7.5k in the other.
I'm 57.

What sort of pensions are they?

Do either of them have valuable guarantees (eg GAR or GMP) that would be lost if you transferred out early?

Aviva section 32 pensions can give very low valuations that conceal valuable guaranteed minimum pensions.

dunstonh

Aviva section 32 pensions can give very low valuations that conceal valuable guaranteed minimum pensions.

That can go for all section 32 buy out bonds with GMP.

PensionTech

Given your situation it seems most simple to ask each provider to pay you an uncrystallised funds pension lump sum (UFPLS) for the whole pension pot. 25% of each payment will be tax free, 75% taxed and they will deduct the income tax. You may need to claim a tax refund, they should tell you how. If only 20% of the 75% was deducted there is no refund to claim, so just do that calculation to check.

I disagree with this slightly - I would ask them to pay either/both out as a "small pot" (or under regulation 11A of the Authorised Payments Regulations 2009) as this wouldn't reduce your Annual Allowance to £10k. I'm guessing it's unlikely that you'll want to save more than £10k per annum into any pensions in the future, but there's no downside to doing it this way rather than the "uncrystallised funds pension lump sum" way, and there is the upside of not having the AA reduced. The tax position in either case is as jamesd describes. The "small pots" option can be used for up to 3 personal pensions if each pot is under £10k - assuming the provider allows it of course, but many will, as it saves them the disproportionately large administrative costs of looking after such a small pension.

Just FYI, the "small pots" option is similar to the "trivial commutation" option you mention, but there are a few key differences - the most important difference being that trivial commutation is no longer allowed for the type of pension you have. I mention this only so that you avoid calling it trivial commutation in future, because if you call your provider and ask for trivial commutation, they will (or should) tell you that it is not permitted by statute.

woolly_wombat

dunstonh wrote: »

That can go for all section 32 buy out bonds with GMP.

Thanks for confirming what I suspected.

I only know that my other half's Aviva section 32 policy has a shockingly low stated value vs the GMP.

I can't help wondering how much the current crop of excellent insurance co's results are down to people cashing in small pension pots that would have yielded far superior value if held to maturity.

dunstonh

I can't help wondering how much the current crop of excellent insurance co's results are down to people cashing in small pension pots that would have yielded far superior value if held to maturity.

An interesting thought. It is indeed correct that if someone does forgo the GMP on a S32 plan, then the provider usually gains. The reduction in their liabilities would find its way onto the books at some point.

xylophone

http://www.scottishwidows.co.uk/extranet/literature/doc/FP0473

jamesd

PensionTech wrote: »

I disagree with this slightly - I would ask them to pay either/both out as a "small pot" (or under regulation 11A of the Authorised Payments Regulations 2009) as this wouldn't reduce your Annual Allowance to £10k. I'm guessing it's unlikely that you'll want to save more than £10k per annum into any pensions in the future

Yes, you're right that that is of value just in case, even though it does seem unlikely to matter in this case.

Money_saving_maniac

Thank you all, I have gone back to dig out the documentation.
The Aviva one describes the pension that I could receive in 10 years time but that it is dependent on the costs of buying a pension at that point so I would assume it has no special guarantees? I can't find the paperwork for the Scottish Widows one so will need to call them up.

Many thanks for telling me what to ask for and that link to the rules, if you hadn't put me right I would have been jumping up and down thinking I couldn't get the money out now!