How to make the most and gain a lump sum

katelina

First let me say me and the husband haven't a clue about pensions so hoping you will all be able to help.

Husband has a couple of small pensions that when he turns 55 next year we're looking to take 20K for various reasons.
One pot is approx £18k the other approx £29k.
Spoke to both providers and can be transferred free.
He also has a old Rolls Royce one worth around £95k at the moment which if we're thinking is right not to touch??
His works pension that he's contributing to at the moment is at about £20k and we know he'll be working till state pension age.

What we're not sure of is how to deal with the 2 smaller pots to take £20k and then maybe reinvest the remainder into his excisting pension??
We were considering just cashing one completely in.
However now wondering do we convert the 2 into a SIPP (Haven't a clue about these).
Would we then be able to maybe get 25% of them in this tax year in Feb (when he'll be 55) and another lump sum in the next tax year?

As you can see no knowledge whatsoever so any advice very much welcome.

Albermarle

Husband has a couple of small pensions that when he turns 55 next year we're looking to take 20K for various reasons.
One pot is approx £18k the other approx £29k.

First point about all pensions is that you have to be clear what type they are . Either DC ( defined contribution , sometimes called money purchase) or DB ( defined benefit also called Final Salary schemes)
If you are not sure and as you 'haven't a clue' about pensions then suggest you spend some time following the links below:
https://www.moneysavingexpert.com/savings/discount-pensions/#need-9
https://www.pensionsadvisoryservice.org.uk/
https://www.moneyadviceservice.org.uk/en/categories/types-of-pensions

If we assume the two pots mentioned above are DC schemes, then you first need to check whether either of them have any special benefits attached - such as a guaranteed annuity rate ( probably best to check by calling them ) as you would not want to lose these benefits by transferring the pension .

IF there are no special benefits , then the situation is quite simple. At 55 you can take 25% as a lump sum tax free from both or combine them and take 25% from the combined pot . If you take any more money from them it will be taxable , assuming he is already earning and paying tax . If you take too much in one tax year it might push him into the 40% tax bracket.

However now wondering do we convert the 2 into a SIPP (Haven't a clue about these).

SIPPS are not suitable for your level of financial knowledge.
Probably the best action would be to just transfer them both to his current workplace pension ( it usually is allowed but you would need to check ) and then with draw money from that ( again best to double check with them first).

He also has a old Rolls Royce one worth around £95k at the moment which if we're thinking is right not to touch??

Without more details it is impossible to comment ( DC or DB ?)

katelina

We dont want to "cash in" on the pension he's contributing into with his present employer. Need that one to build on.Ideally would have just liked to cash the larger one in and transfer the smaller one.
Both providers have said it's transfer free.
Both the pensions are not final salary pensions if that helps.
One is with Aegon a "Retireready", think its linked to Isa stocks and shares??

Linton

Moving pensions into a SIPP works in much the same ways as moving an ISA. You set up a SIPP with your chosen provider and then ask them to transfer-in your other pensions. The SIPP provider will manage the whole process. Having transferred you will have just one pension containing the wealth of both originals.



To give a very brief overview of what happens next....


Once the pensions have been transferred, probably as cash in your case, you can buy and later sell funds online within the SIPP. At 55 you can request the TFLS and taxed drawdown from your provider. There are different options and potential complications.


Having taken the 25% at 55 you can then withdraw as much or as little as you want at any time. But there are some gotchas.
1) You say your husband will continue working. Once you withdraw any taxable money beyond the tax free 25% from a DC pension your annual pension allowance for contributions reduces from £40K to £4K. If the value of your husbands and his employers contributions in any tax year exceeds this he will lose the tax benefits on the excess contributions and will face an extra charge. So its probably best not to withdraw any taxable money.
2) Once money has been withdrawn a platform may charge about £100/year even if no taxable money is withdrawn in that year - check the details of the charges before deciding on your platform.
3) Taxable withdrawals are treated as income just like wages. So if you withdraw a large lump sum you could face higher rate tax.

Ceme3000

I had a friend who worked at Rolls Royce Filton in the 90's and his was a final salary scheme that he said had rather good early retirement options. Though could be different now. Their website suggests anyone who joined before 31st March 2007 was in the DB (final salary scheme).

http://www.rolls-roycepensions.com/Homepage

Certainly worth contacting the administrators to find out the options I would say.

katelina

Ceme3000 wrote: »

I had a friend who worked at Rolls Royce Filton in the 90's and his was a final salary scheme that he said had rather good early retirement options. Though could be different now. Their website suggests anyone who joined before 31st March 2007 was in the DB (final salary scheme).

http://www.rolls-roycepensions.com/Homepage

Certainly worth contacting the administrators to find out the options I would say.

Yes he was definately in the Final Salary Scheme as he was only there for 8 years in the late eighties early nineties. Sometimes wished he's stayed there as he'd be quids in now as its worth £95k just on those 8 years. Hindsight and all that

xylophone

He also has a old Rolls Royce one worth around £95k at the moment which if we're thinking is right not to touch??

This is a deferred Defined Benefit pension? Presumably your husband has the details.

If so, this is a "safe guarded benefit" and you would need to take and pay for the advice of a Pension Transfer Specialist before it could be transferred out to a Defined Contribution Scheme. It is a pension that will pay a secure (and probably at least partially index linked) income for life to the pensioner and almost certainly a widow's pension after his death.

With regard to the two DC pensions, it would be possible to combine them, take just the 25% tax free Pension Commencement Lump Sum (about £11750), and then transfer the balance to his existing pension assuming that it accepts a transfer in.

It would be possible for him to draw more than the PCLS but if he did so, he would then be restricted as to how much he could contribute to any other DC (Money Purchase) pension thereafter because he would have triggered the Money Purchase Annual Allowance.

Is his current works pension a DC arrangement?

He can seek an appointment with Pension Wise to discuss his options.

katelina

Linton wrote: »

Moving pensions into a SIPP works in much the same ways as moving an ISA. You set up a SIPP with your chosen provider and then ask them to transfer-in your other pensions. The SIPP provider will manage the whole process. Having transferred you will have just one pension containing the wealth of both originals.



To give a very brief overview of what happens next....


Once the pensions have been transferred, probably as cash in your case, you can buy and later sell funds online within the SIPP. At 55 you can request the TFLS and taxed drawdown from your provider. There are different options and potential complications.


Having taken the 25% at 55 you can then withdraw as much or as little as you want at any time. But there are some gotchas.
1) You say your husband will continue working. Once you withdraw any taxable money beyond the tax free 25% from a DC pension your annual pension allowance for contributions reduces from £40K to £4K. If the value of your husbands and his employers contributions in any tax year exceeds this he will lose the tax benefits on the excess contributions and will face an extra charge. So its probably best not to withdraw any taxable money.
2) Once money has been withdrawn a platform may charge about £100/year even if no taxable money is withdrawn in that year - check the details of the charges before deciding on your platform.
3) Taxable withdrawals are treated as income just like wages. So if you withdraw a large lump sum you could face higher rate tax.

Most of that has gone over my head. Sorry.
Was thinking of taking 25% tax free out of both then we realised thats not enough for what we need it for.
If we did do that is the remaining pot able to be transferred into his excisting pension?
If we take the full pot from the £28k one and I put it into a pension calulator online along with his income it tells me he will get £22200 of it. Is that right?
I'm putting in a income of £37k which includes overtime etc and the pot of £28k.
Am I allowed to take £20k of the pot and put the remaining into his pension or leave it in the cuurent one?
Hope I'm eplaining this right.

Linton

katelina wrote: »

Most of that has gone over my head. Sorry.
Was thinking of taking 25% tax free out of both then we realised thats not enough for what we need it for.
If we did do that is the remaining pot able to be transferred into his excisting pension?
If we take the full pot from the £28k one and I put it into a pension calulator online along with his income it tells me he will get £22200 of it. Is that right?
I'm putting in a income of £37k which includes overtime etc and the pot of £28k.
Am I allowed to take £20k of the pot and put the remaining into his pension or leave it in the cuurent one?
Hope I'm eplaining this right.

It depends on the scheme rules. Old pension schemes would have been set up before drawdown was mainstream and would assume that when you retired you simply took your lump sum and immediately bought an annuity with the rest. So their computer systems may well not handle what you want to do. Transferring first to a modern flexible pension and taking the 25% from the transferred pension will always work.

Albermarle

Some things you are allowed to do but are not necessarily in your best interest .

He can seek an appointment with Pension Wise to discuss his options.

Of all the advice above this is probably the best option before doing anything.
Pension Wise is a free Government service to help people make the right decisions about their pension options . You can book a free one hour discussion with them although I think there will be a waiting list .
https://www.pensionwise.gov.uk/en

katelina

Just looked at the smaller pension with Standard Life.
It says Plan Value £15712 Transfer Value £19522
When you're looking to take 25% which figure do you look at?
Would it be better to transfer one to the other then take the 25%
Seems to be 3 parts to it- Pension Millenium with Profits, Pension with profits (only£24) and Standard Life Managed Pension Fund.