What to do with very small pension pot

Bonbon

I have a tiny pension pot worth only £22,000 and it matures in March, my 65th birthday.
Apparently this will provide me with a pension of maybe £1000 a year (£19week) if I'm lucky. My family are not long lived, mostly going in their 70's but I am hoping to prove that wrong! As it's such a small amount I am not considering an annuity.
I know I can take 25% tax free, but what to do with the rest.

1. Can I take 25% tax free every tax year or is it a one time only option. I want to make sure I dont lose any of the pot by drawing some and losing the rest if I die. If there is anything left I want it to go to my children,
2. Can I take a lump sum each year and it still be tax free as long as my total income is less than my tax allowance. ie My state pension + a lump sum?

Marcon

Bonbon wrote: »

I have a tiny pension pot worth only £22,000 and it matures in March, my 65th birthday.
Apparently this will provide me with a pension of maybe £1000 a year (£19week) if I'm lucky. My family are not long lived, mostly going in their 70's but I am hoping to prove that wrong! As it's such a small amount I am not considering an annuity.
I know I can take 25% tax free, but what to do with the rest.

1. Can I take 25% tax free every tax year or is it a one time only option. I want to make sure I dont lose any of the pot by drawing some and losing the rest if I die. If there is anything left I want it to go to my children, If you take 25% of the whole 'pot' in the first year, it's a one time option. If you take 25% of (say) half the pot, you can take a further 25% from the remainder. For what happens when you die, there's a good explanation at https://www.aviva.co.uk/retirement/pensions/aviva-personal-pension/what-happens-to-your-pension-when-you-die/
2. Can I take a lump sum each year and it still be tax free as long as my total income is less than my tax allowance. ie My state pension + a lump sum?Yes

Please see above.

xylophone

https://www.pensionwise.gov.uk/en

If this is a DC pension, an interview with the above might help.

Have you obtained a state pension statement?

https://www.gov.uk/check-state-pension

Bonbon

Xylophone, thanks,
Yes DC pension with B&CE I've contributed for about 18yrs but as I've only been on minimum wage or currently part time, it has never been much. Hence such a small pot, even though my employers contribute. I've received my state pension statement.

xylophone

You could consider a transfer to a SIPP with HL.

They don't charge for holding cash which might be your preference with this modest sum.

They do not charge for drawdown.

You might then consider taking the tax free pension commencement lump sum (£5500) and as much of the balance as keeps you within your tax free allowance for the tax year in which you take it.

You might then draw down the balance over the next couple of years as best suits your tax position.

They are helpful on the phone should you wish to explore this option.

Bonbon

Ive just read this on Pension Wise.uk.

Take cash in chunks
Overview
You can take smaller sums of cash from your pension pot until it runs out. How much you take and when you take it is up to you.

You decide how much to take and when to take it.
Your 25% tax-free amount isn’t paid in one lump sum – you get it over time.
Each time you take a chunk of money 25% is tax free and the rest is taxable.
Some pension providers charge a fee to take cash out.

Not all providers offer this option. If your current provider doesn’t offer it, you can transfer your pot to another provider but you might have to pay a fee.



Example
Your pot is £60,000. You take out £4,000 each year – £1,000 is tax free and £3,000 is taxable. You work part-time and earn £12,000 a year. The total of your earnings and the taxable cash you’ve taken from your pot is £15,000. This is above the standard Personal Allowance of £11,850. You pay £630 in tax.

dunstonh

I have a tiny pension pot worth only £22,000 and it matures in March, my 65th birthday.

In which case, it probably does not mature on your 65th birthday. Most money purchase pensions set an age for statement projections only. You are not required to take the pension at that age. You just pick a new age for statement projections and then take benefits when you actually need it.

Apparently this will provide me with a pension of maybe £1000 a year (£19week) if I'm lucky.

Is that an actual figure or a statement projection? (which is artificial and not real)

Do you need the money now? No point taking it if you dont unless there is justification.

cobson

I think B&CE have rebranded their pensions as The People's Pension (more details at https://bandce.co.uk/products-services/construction/easybuild/)

Options for taking their pensions shown here:

https://thepeoplespension.co.uk/how-you-can-take-your-pension-money/

xylophone

Example
Your pot is £60,000. You take out £4,000 each year – £1,000 is tax free and £3,000 is taxable. You work part-time and earn £12,000 a year. The total of your earnings and the taxable cash you’ve taken from your pot is £15,000. This is above the standard Personal Allowance of £11,850. You pay £630 in tax.

https://thepeoplespension.co.uk/help/knowledgebase/differences-flexi-access-drawdown-ufpls/

dunstonh

Is the BC&E pension (now Peoples pension) the old lump sum retirement benefit scheme, stakeholder or their auto-enrolment scheme? The LSRB is a hybrid pension with different options.

Bonbon

I have been auto -enrolled and combined my previous company pension when I started a new job 3 yrs ago.
Ive just found a booklet from Peoples Pension with options that I think will suit me. I can take lump sums up to 4 times a year without charge.Minimum withdrawal is £2000 each time. This means my pot could potentially last 11yrs to top up my state pension and all will be tax free as the total will be below my tax allowance. . Then I have other savings to use later.
My official government retirement date is Sept ( 65yrs 6 mths) so I wont be drawing from the pot yet.