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Yet another pension query ...

Hi

I've tried finding an answer to my query in the forums but mine is such a simple question I doubt anyone has had to ask it before. I apologise in advance for my ignorance around personal pensions (or any other pensions for that matter).

I have a very small personal pension with Legal & General, currently worth about £14k with 12 years to go. As I changed jobs my new employer does not make a contribution so I only pay £50 per month myself. Yes, I know it will be just about worthless if and when I reach retirement.

My query is, as I'm now 50 can I get hold of the 25% tax free sum now or do I have to wait until I'm 55? I was going to search for an IFA but feel that as the fund is so small they wouldn't be very interested in my case. The original L & G advisor is long gone. If I can't get my hands on even 25% of it just yet is it worth me transferring to a different sort of pension or just leaving things as they are?

Any advice would be much appreciated. Thanks.
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Comments

  • dunstonh
    dunstonh Posts: 118,599 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    You cannot do income drawdown with the L&G pension. It would need to be transferred (either internally or to another provider).

    Yes, I know it will be just about worthless if and when I reach retirement.

    £50pm isnt worth the effort but the £14k that is in there certainly isnt going to be worthless. Investment returns should be inflation so in real terms it will be worth more than it is now if left for another 21 years.
    as I'm now 50 can I get hold of the 25% tax free sum now or do I have to wait until I'm 55?

    You can get it now. If you have a spouse, you need to be aware that your death benefits will be reduced.
    The original L & G advisor is long gone.

    tied agents cannot do drawdown normally anyway.
    I was going to search for an IFA but feel that as the fund is so small they wouldn't be very interested in my case.

    Yes, its more work and liability than its worth.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    annandalex wrote: »
    My query is, as I'm now 50 can I get hold of the 25% tax free sum now or do I have to wait until I'm 55?

    You can get it now but you will have to take benefits from the pension at the same time.This involves either buying an annuity with the rest of the fund or moving it to a SIPP and putting it into "income drawdown" .You do not have to take an income at this stage if you don't want to.You can just take the tax free cash and leave the rest invested to grow.

    This will work assuming there are no "protected rights" in the fund.

    https://www.h-l.co.uk
    https://www.sippdeal.co.uk
    https://www.alliancetrust.co.uk

    Have a look at these SIPP providers with no annual fee and low charges.They are 'execution only ' so will not give you advice so you'll need to decide on the investments yourself.
    Trying to keep it simple...;)
  • Thanks for your advice, I appreciate it. I will look into transferring to a SIPP (which someone else had mentioned to me but didn't explain it very well) - I would like to claim the 25% but would leave the rest to grow.

    For personal reasons I cannot really afford more than the £50 a month. Would you say it is worth continuing that or just leaving it as a lump sum at the time of transferring? Thanks.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    annandalex wrote: »
    For personal reasons I cannot really afford more than the £50 a month. Would you say it is worth continuing that or just leaving it as a lump sum at the time of transferring? Thanks.


    If you are a basic rate taxpayer and have no employer contributions, a pension is not the optimal way to save for retirement.You might be better to use the money to reduce debt, pay off a mortgage faster (current interest rates are high, giving a guaranteed return higher than risk based investments in many cases.) A cash rainy day fund is also a very useful thing to have, sheltered in an ISA or index linked certs from NS&I. If you want a risk based investment, a stocks and shares mini ISA via a discount broker would be a better choice - the underlying investment is the same as a pension but all the money remains accessible in case you need it and is tax free on exit,unlike the pension.
    Trying to keep it simple...;)
  • dunstonh
    dunstonh Posts: 118,599 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    If you are a basic rate taxpayer and have no employer contributions, a pension is not the optimal way to save for retirement

    Please note that this is Eds opinion and is not factually correct. There are pros and cons with different methods and to say it is not optimal is wrong.

    For example, when looking purely at income provision, nothing beats a pension. It may be no good for building up a lump sum but for income provision, it is top.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    dunstonh wrote: »
    Please note that this is Eds opinion and is not factually correct. There are pros and cons with different methods and to say it is not optimal is wrong.

    The main advantage of a pension is tax relief.But a basic rate taxpayer will repay 75% of the tax relief received in retirement only the lump sum is exempt. In return for this you lose the capital forever and there are strict limitations on the amount of income you can take out.
    For example, when looking purely at income provision, nothing beats a pension. It may be no good for building up a lump sum but for income provision, it is top.

    Again that depends on your tax and benefits position in retirement.Some people may be far better off maxing out their ISA as if they acquire additional taxable pension income, they will be pushed into the higher rate band or suffer age allowance clawback.

    At the other end of the scale, they will lose valuable means-tested benefits and their savings will be wasted.

    IMH0 anyone who is normally short of cash and only has a small pension should not lock cash away where it cannot be retrieved and risk ruling themselves out of state benefits.As you know this is a major issue with the planned personal Accounts and it is certainly relevant to someone like the OP.

    The "ISA versus Pension" discussion thread will show that my view is quite widely held. The position is different where there is free money from an employer and/or the investor is on high rate tax.
    Trying to keep it simple...;)
  • dunstonh
    dunstonh Posts: 118,599 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    The main advantage of a pension is tax relief.But a basic rate taxpayer will repay 75% of the tax relief received in retirement only the lump sum is exempt. In return for this you lose the capital forever and there are strict limitations on the amount of income you can take out.

    For giving up the capital you get a return that is in excess of 10% a year ignoring any growth received in the interim.

    You would be hard pushed to find any legal means to obtain a guaranteed income for life in excess of 10%. That is where the pension wins.

    If you want capital instead of income then you dont use a pension.
    The "ISA versus Pension" discussion thread will show that my view is quite widely held.

    The ISA vs Pension discussion threads has my views as being widely held. On that thread the pros and cons are well discussed and highlights that one size does not fit all. On other threads you never mention the pros and cons and that leaves the posters who are not regulars confused on what is best for them.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Now you're both getting me confused! though your opinions obviously raise issues to look into further. Re EdInvestor's comment:

    At the other end of the scale, they will lose valuable means-tested benefits and their savings will be wasted.

    This is one of my main concerns about my small pension as my mother has found out to her disadvantage that having a company pension together with state pension has excluded her from claiming Pension Credit and therefore a whole raft of valuable benefits that she sees others in receipt of. As a single parent myself with no financial support from anyone else I can see myself ending up in the same situation.

    Thanks for the time you have both taken in responding to my queries, despite it being a relatively small investment.
  • dunstonh
    dunstonh Posts: 118,599 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    benefits are no longer reduced on a £1 = £1 basis. It used to the case where there was no point putting aside small amounts as you were losing out on benefits. Small amounts will still reduce your benefits but you are encouraged to save/invest small amounts without getting a full reduction. There are also amounts that can be had where no reduction takes place at all.

    If you have a full state pension and SERPS/S2P entitlement, then it wouldnt take much income/savings to get no benefits.
    my mother has found out to her disadvantage that having a company pension together with state pension has excluded her from claiming Pension Credit and therefore a whole raft of valuable benefits that she sees others in receipt of.

    Your mother may not have paid into the occ scheme or paid a very small amount. By doing so she is certainly better off because benefits would not provide more than you can get saving yourself. Only possibly the same or less.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    The trouble is that the pension credit is the passport to free council tax and housing benefit.For people who don't own their own home, missing out on these due to having a pension that is slightly too large means they are significantly worse off overall than people who haven't saved at all.

    It's a well known flaw in the pension/benefits system and the "credit" adjustments don't really solve the problem. :(.
    Trying to keep it simple...;)
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