What to do

Legacy_user

Back in the 90's I took out a private pension, opted to retire at 55, paid a few thousand in, then took a job with a half decent pension, so stopped paying in to the personal one.
I'm now approaching 55 and the pension is due to pay out.


The fund is only worth £26k so will pay out just about nothing per month.


My options are, Annuity, Drawdown or transfer to a cash fund.
Although I've not yet sought any official advice, a few folks have mentioned that the cash fund is like putting it in a bank account, where it will earn next to nothing.


I'm in a well paid job, and don't need the money, but I don't want it to sit there stagnating.
If it's going to stagnate, it might as well do so in a biscuit tin under my bed.


So I've considered, taking the lot, take £6500 tax free, pay tax on the remaining £20k.
I'm just inside the 40% tax bracket, so paying tax on the £20k, I guess will be at 40% ???


I guess after tax, I'll come out with around £18k, which I then considered maybe putting in to my premuim bonds and hope for a decent win.


Or could I do this.


Take £6.5k tax free then transfer the remainder in to my current pension fund.


I was going to call Pension Wise, but theres an 8 week waiting list.
(Another waste of time government department.)


If I took the lot, paid tax at 40% on the £20k, then paid this in to my current pension, could I claim 40% tax relief on what I paid in.

wjr4

Why don't you transfer it all to your current provider? Make sure you review the existing pension properly though! E.g. Guaranteed Annuity Rates, Guaranteed Minimum Pension, enhanced tax-free cash (PCLS) etc.

Depends what type of pension it is.

System

I'll be honest, I don't understand pensions.
My current pension is the 'Peoples Pension'

BLB53

Best option would be to open a SIPP and than arrange for it to be transferred and then invest for more growth. When you retire you will likely become a standard rate tax payer and you can then take benefits.

No point taking it now and paying 40% tax when you do not need the money.

dunstonh

I'm in a well paid job, and don't need the money, but I don't want it to sit there stagnating.

Leave it invested then. General rule of thumb is to not take benefits from a pension unless there is a justifiable reason for doing so.

So I've considered, taking the lot, take £6500 tax free, pay tax on the remaining £20k.

And what is the justifiable reason for doing that? I can't see one.

I'm just inside the 40% tax bracket, so paying tax on the £20k, I guess will be at 40% ???

correct. It is very generous of you to gift the treasury when you dont need to. However, are you sure you want to give them that gift?

I guess after tax, I'll come out with around £18k, which I then considered maybe putting in to my premuim bonds and hope for a decent win.

A bog standard middle of the road fund on pensions returns an average of around 5.5% p.a. Premium bond average payout is 1.4%. So sticking with averages, you would be worse off. Plus, that is before you have paid all that unnecessary tax.

You would also reduce your annual allowance on pension contributions, including employer to just £4,000 a year.

I'll be honest, I don't understand pensions.

And keeping with that honesty, it shows.

You are proposing to do a really silly thing for no particular reason. Why cant you leave the pension where it is? (the age thing is just for annual statement projections and to give an idea of when you may retire - its not cast in stone. Just defer it to 75 and then take it when you need it)

System

The paperwork recieved yesterday would indicate that I can't leave it where it is.
If I could, then I probably would.


The letter gives the impression that I can take the pension or transfer it to thier cash fund.
Eitherway, it's not going to increase in value and is hardly worth taking.

kidmugsy

keat63 wrote: »

So I've considered, taking the lot, take £6500 tax free, pay tax on the remaining £20k.
I'm just inside the 40% tax bracket, so paying tax on the £20k, I guess will be at 40% ???


I guess after tax, I'll come out with around £18k, which I then considered maybe putting in to my premuim bonds and hope for a decent win.

The League of Straitened Taxpayers warmly applauds this noble gesture.

Linton

keat63 wrote: »

The paperwork recieved yesterday would indicate that I can't leave it where it is.
If I could, then I probably would.


The letter gives the impression that I can take the pension or transfer it to thier cash fund.
Eitherway, it's not going to increase in value and is hardly worth taking.

The Peoples pension website says you can leave the money where it is. See https://thepeoplespension.co.uk/compare-retirement-options/

tacpot12

keat63 wrote: »

I'll be honest, I don't understand pensions.
My current pension is the 'Peoples Pension'

Can I suggest that you apply yourself to trying to understand the pensions you have?

All the pensions schemes issue information, most of it in a readable form. You really just need to understand the basics of your schemes:

• when does it pay out
• how much does it pay out (and does this amount increase with inflation or not)
• what happens if you die (not so relevant if you have no partner, spouse or relatives)
• who owns the investments that will provide you with the income (you or the pension scheme)
• if you own the investments, where are they invested (you can change where they are invested to increase the return on them)

You can ask questions on MSE or google them to help you understand your pensions. It is worthwhile to do so, and will make you feel better.

System

I hate the tax man as much as anyone.


My comments are purely scenarios running around my head.
The pension would probably pay out around £15.00 per week if I were lucky.
That's not even beer money, so it's not worth taking as a pension.


If I take the lump, I'll pay a fair amount in tax, leaving me with less to invest, whether this be premium bonds and hope for a win.
I lost confidence in ISA's many years ago.



If I transfer it, and wait another 15 years, it will still only be worth beer money at best.

System

Linton wrote: »

The Peoples pension website says you can leave the money where it is.


This pot is with Prudential.
My current pension is with Peoples Pension.