Help - Commutation or UFPLS?

Quietearth

I have one extremely small pension pot which is just about to mature. I am on a low income (well below personal tax allowance) and have to make my own NI contributions, and this is unlikely to change over the next 12 years (when I reach retirement age). Furthermore I am single. I want to take my pension as a lump sum but can't decide between the above two options. Commutation means having to pay tax upfront. UFPLS means being assessed later by tax office but I believe I fall well below the next tax bracket. However I know there is this odd condition where your annual allowance falls from 40,000 to 4,000. if you take any form of flexible access payment from your pension. This will hardly affect me, but (thought experiment) what if by some miracle my circumstances change? Is it madness to go for an option that has such severe consequences?

Secondly, the reason that I wanted to cash this pension in, is so that I can make up the shortfall on my state pension. (ie Years Not Full) I am several years short at present. What do you think I ought to do?

xylophone

What is the value of the pot?

Quietearth

Hi, its very small indeed, only £800.

xylophone

See
https://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/the-right-choice-for-me/taking-a-small-pension-as-a-cash-lump-sum

and

https://www.moneyadviceservice.org.uk/en/articles/money-purchase-annual-allowance


The MPAA won’t normally be triggered if:

You take a tax-free cash lump sum and buy a lifetime annuity that provides a guaranteed income for life that either stays level or increases

You take a tax-free cash lump sum and put your pension pot into a flexi-access drawdown scheme but don’t take any income from it

You cash in small pension pots valued at less than £10,000

If your payment is overtaxed, apply to HMRC for a refund.

https://www.gov.uk/government/publications/income-tax-repayment-claim-when-small-pension-taken-as-a-lump-sum-p53