Pension/Redundancy

skmcc1960

I have been advised I am at risk of redundancy, I will find out this week. I have been with my company for 20 yrs. Husband and I have a substantial amount of debt (we got together late in life and had to start again, due to divorces etc). Current amount of debt (excluding mortgage is approx £50k - this is costing us £1400 per calendar month.

I have 2 pensions. The first is a final salary scheme that was wound up as our co was acquired by another, so no more contributions to it but it will pay out. Second pension is with the co that acquired us, started 3 yrs ago.

My own personal health has not been good in the last 2 yrs or so, diagnosed with cancer, currently no evidence of disease.

I am 55 yrs old. Question is, if I am made redundant should I use the redundancy sum to pay off credit cards/loans?

I also would like to know whether I should release 25% tax free sum from my main pension, this would enable us to be absolutely debt free, the first time ever in my life.

I would really appreciate your thoughts on this one.

xylophone

If the debt is costing more than you can earn in savings interest after taking into account any tax you might owe, then it would seem to me to be sensible to reduce the debt.


As you are being made redundant and in view of your health problems, is there any chance that you would qualify for an immediate unreduced pension?

BobQ

If you are made redundant you should reduce these loans with the redundancy pay if you cannot pay them.

What is your husband's situation, will he continue working and does he have a good pension.?

If you are not made redundant will you continue working?

£50K on credit cards and loans seems expensive: Do you have any scope to release equity on the mortgaged property so reducing the cost of the interest? Only makes sense if you can afford to pay them

If you take a lump sum from a final salary pension you will probably have the pension reduced quite a bit for early payment.Have you asked what this is? What is the normal retirement age from the scheme? If it is 65 you may lose nearly half the pension. Have you explored if you qualify for any ill health pension benefits?

Drawing the pension now will also affect you claiming Job Seekers Allowance I suspect unless you get a job soon.

skmcc1960

BobQ - My husband does have a pension, its not as good as mine though. Also he is 5 years younger than me.

I will keep working if I am not made redundant.

I havent explored whether I would qualify for any ill health benefits yet. Didnt realise there were any linked to a pension.

In truth my biggest worry just now is that the loans/credit cards take up a massive chunk of money each month. Husband and I put £1400 each into the joint acc for bills, total £2,800. The debts account for £1380 each month, the rest is what I call normal household bills. I cant imagine what its like to be debt-free. Its dragged me down for about the last 25 years or so. Broken marriages, set up costs new homes etc. I think I have started over 3 times ! So I see my friends have paid off their mortgages and are enjoying life .. we arent.

xylophone

The debts are a burden and are preying on your mind.

You may not be able to access your DB pension without actuarial reduction - if you can't it would probably be best left where it is.

In these circumstances, it seems to me that using the redundancy money to clear the debts would be very worth while.

Your husband will still be working so that there will be money coming in and he will no longer be paying off debt.

You yourself will be entitled to JSA (cont) while you look for a new job.

You will leave the DB pension deferred (bearing in mind that should ill health supervene, you can request for it to be paid immediately and without reduction on the grounds of ill health).

If you find another job, you might wish to explore the possibility of transferring the DC pension to your new employer's pension scheme.

You and your husband might wish to obtain new state pension statements.

https://www.gov.uk/government/publications/application-for-a-state-pension-statement

skmcc1960

xylophone - I can withdraw 25% of my Final Salary Pension (no tax) as I am now over 55, and I would also have to start taking my pension every month.

Thanks for the info on the new state pension statements.

If I took the 25% lump sum and had also been made redundant, does that mean I couldnt claim JSA?

xylophone

I can withdraw 25% of my Final Salary Pension (no tax) as I am now over 55, and I would also have to start taking my pension every month.

Can you take it at age 55 without actuarial reduction? It may be that your scheme permits this if the employee is made redundant.

You will also receive a redundancy pay out?

If you draw your pension, do you have to take the 25% PCLS or can you opt for higher monthly pension?

While it would appear that you would be entitled to JSA (cont) as a job seeker, drawing your pension could have an effect on the amount you receive.

https://www.citizensadvice.org.uk/benefits/in-work-or-looking-for-work/benefits-for-people-looking-for-work/

"Contribution-based Jobseeker's Allowance is not affected by any savings you have. However, if you have part-time earnings or an occupational or personal pension, this may affect how much contribution-based JSA you get. For example, the amount of contribution-based JSA that you get is cut pound for pound for any occupational pension that is over £50 a week. If you earn too much, you will not get contribution-based Jobseeker's Allowance at all."

skmcc1960

If I am made redundant I will receive a redundancy pay out.

Actuarial Reduction - I dont know what this means?

xylophone

Have a look at this:-

https://worksmart.org.uk/pension-advice/workplace-pensions/all-about-retirement/can-i-take-early-retirement

mangle101

Not in relation to your pension or redundancy but, with your debts, have you posted on the Debt Free Wannabe board? Lots of knowledgeable people who may be able to provide assistance.

jamesd

We can't really answer properly yet because the correct answers will depend on the interest costs of each debt and what type of debts they are. Whose name they are in also matters (joint on cards is really one, need to know which one).

Broadly, though, yes, it would probably be a good idea to take the 25% tax free lump sum from the current work scheme to use for reducing debts that are in your name and which you're paying interest on unavoidably. the reason for this is that you might not be able to get work for a while and this would block you from getting new credit card deals or loans that might cut the costs.

The reason his credit is different is that since he is working he would still have the job to support seeking new balance or money transfer deals or loans that could cut costs or keep them low.

To further help replying it would also be good to know about any current balance transfer and money transfer deals on each card. This would allow a plan to be constructed to sort out the possible ways to reduce the costs.

There is one useful trick that you might not have realised can be done with credit card balance transfer offers. Many cards will not take the normal monthly direct debit if a payment has already been made. That payment can be made using a balance transfer of the monthly payment (plus a penny) to another card which has a balance transfer offer. That can help to cut the net monthly spend though of course it just increases the time to pay. It's useful for stoozers or just for anyone who needs to spread out the repayment for longer. The penny extra is because some cards report whether only a minimum payment was made and even a penny above minimum removes that flag and makes your credit record look a little better. That might improve the deals you have available.

You can also seek a new card or two now with long balance transfer or money transfer offers if you don't already have good deals.

Another card trick you can use is to spend the minimum payment amount on a card that has a long-running 0% or life of balance deal, until the deal is perhaps six months from ending. Then the minimum payment pays off the purchase. There will be a small interest cost for the spend money but the gain is that you keep the amount at the deal rate higher for longer, so you gain overall. This is one of the fine tweaks to the don't spend on cards with deals guideline, a case where it can make sense.