Pension options when in poor health before retirement age

BooJewels

I'm looking for some ideas in respect of my husband's private pension - due to the financially precarious circumstances we find ourselves in. I don't know if all pensions are similarly structured and I simply don't understand them, so just after some general principle type answers - just because I'm thinking about longer term future finance quite a lot at the moment.

He's paid a modest amount in to a private pension for many years and it will 'mature' when he turns 65, earlier than his state pension. He has a more recent work place pension, but I don't have details of that, but it will be modest. He's approaching 61 and is in poor health - he lost the part time job he had recently when he became ill again and he's currently in hospital. It is likely to be some months before he can contemplate working again, if at all. We have almost no income at present as I've been caring for him and the affairs of another family member, so my self employed work is seriously diminished.

He has a total 'pot' which is approaching £100k. It won't be enough to live on in retirement in itself. I understand anything we were to withdraw now as a lump sum would diminish the pension and some of it would be taxable. That's the least attractive option, that I've discarded for the moment. I see that as a last resort emergencies fund.

There are a couple of aspects of the pension that I'm confused about. There seems to be a life insurance element noted separately that seems to be around 32k (as it includes a 10k life insurance bonus), if he passes before his 65th birthday, but the annual statements also include numbers along with the annotation "Value if you'd died on x date" suggesting that the entire pot would pay out on death - but I don't think that's the case, is someone able to clarify how it works? He has already named me as any beneficiary. The total pension is in 3 policies due to historical changes, which makes it a bit more complicated. If he were to take any pension option now (as below), would that negate the life cover aspect?

There's also a comment to ring them for details if you are unable to work due to ill health - how might this work in practice - what would be the long term implications if we went this route? It also states that you can take your pension benefits at any time from 55 years, but presumably that would be at a lower rate per month?

I appreciate that you might not have enough to go on, so I'll try and answer any questions, as I do have access to the paperwork - and his permission to ask. Obviously we would take financial advice before actually doing anything. I'm just trying to come up with some 'food for thought' ideas at this stage, as we consider our options.

I'm going to do a post and scarper as I head to bed, but I'll check back in the morning. Many thanks.

Malthusian

He has a total 'pot' which is approaching £100k. It won't be enough to live on in retirement in itself. I understand anything we were to withdraw now as a lump sum would diminish the pension and some of it would be taxable. That's the least attractive option, that I've discarded for the moment. I see that as a last resort emergencies fund.

Worth nothing that he can draw up to 25% as tax free cash without drawing taxable income.

There are a couple of aspects of the pension that I'm confused about. There seems to be a life insurance element noted separately that seems to be around 32k (as it includes a 10k life insurance bonus), if he passes before his 65th birthday, but the annual statements also include numbers along with the annotation "Value if you'd died on x date" suggesting that the entire pot would pay out on death - but I don't think that's the case, is someone able to clarify how it works?

All defined contribution pensions pay out the full fund value on death.

Some legacy pension policies can also pay out an element of life cover on top. It sounds like he may have one of these. You may want to check if the pension will pay out a minimum of X (i.e. the life cover is moot if the fund value already exceeds X) or a certain amount of life cover on top of the fund value.

If he were to take any pension option now (as below), would that negate the life cover aspect?

Very likely.

There's also a comment to ring them for details if you are unable to work due to ill health - how might this work in practice - what would be the long term implications if we went this route?

Unless it's a defined benefit pension or has special guarantees in place, it makes no difference. People under age 55 who are too ill to carry on with work can take their pension earlier than the standard 55 if the scheme rules allow. But he's already over 55 so that's irrelevant.

You should post on the Benefits board and check both you and your husband are claiming everything you're entitled to. Pension funds are generally exempt from means-testing (at least at your husband's age) but any money you draw out of them becomes assessable.

kazwookie

Can you claim carers allowance? have you checked?


Your husband can have 25% as a tax free lump sum.


Your husband / you can get advise from pensionwise it is free of charge.


https://www.pensionwise.gov.uk/en?msclkid=9fadd284244218f636ac8ca1ac4325ff&utm_source=bing&utm_medium=cpc&utm_campaign=00188082_PEW_Pensionwise%20Q4%20_Paid%20Search_Bing_Action_Keyword-45%2B%20%26%20Unknown-Do-PensionWise-Brand&utm_term=pension%20wise&utm_content=New%20%7C%20Do%20-%20PensionWise%20Brand&gclid=CLSfwPuCkucCFcaKGwodYScMhQ

Albermarle

There is a government backed website which could be useful:
https://www.pensionsadvisoryservice.org.uk/
and here you can make an appointment for a telephone discussion ( also government backed )
https://www.pensionwise.gov.uk/en

BooJewels

Many thanks for the responses, it's truly appreciated. I'll try and work through them all individually.

Malthusian wrote: »

Worth nothing that he can draw up to 25% as tax free cash without drawing taxable income.

Yes, that's the one bit I do understand, but that obviously leaves your pot and therefore pension reduced - hence I'm treating that as a last resort, if I can find better sources of finance in the meantime.

All defined contribution pensions pay out the full fund value on death.

Thank you. My own feeling at the moment - if this is indeed the case, that we may be better served leaving his pension alone and treating it as a life insurance policy. I appreciate that's a bit self-serving, but the modest amount of pension (if he took it now) might have less value than a lump in a year or two.

Some legacy pension policies can also pay out an element of life cover on top

I think this must be what he has - there is a £10k life insurance bonus up to his 65th birthday. He's had the policy around 30 years.

Very likely.

See my point above - it might be better to just forget about the pension for now (my first thought anyway) and treat it as decent life insurance. I'd obviously prefer not to need it at all.

But he's already over 55 so that's irrelevant.

I must have mis-read - it must have been for people under 55 - I need to check that.

You should post on the Benefits board and check both you and your husband are claiming everything you're entitled to. Pension funds are generally exempt from means-testing (at least at your husband's age) but any money you draw out of them becomes assessable.

Thanks, I'll look at that - we're not claiming anything at the moment - have had no state help at all to date. My quick appraisal would suggest that we're not eligible for anything - there are too many stipulations that we fail on - just being too sick to work and unemployed seems to fall through the cracks. We've got just enough savings left from a critical illness payout and not enough children and own our own home, so just don't qualify.

BooJewels

kazwookie wrote: »

Can you claim carers allowance? have you checked?

I don't think it will be applicable in the medium term, where it was 3 weeks ago when he was very poorly - as it has to be 35 hours a week and him be in receipt of other qualifying benefits. I don't think we actually qualify for anything - we seem to fall through all the cracks between different benefits. Not long term disabled enough for PiP - not ill/dependent enough for Attendance Allowance etc. etc.

Your husband can have 25% as a tax free lump sum.

Indeed and that's what I'm treating as our dire emergency fund - I hope we can sort alternatives out before we get to that.

Your husband / you can get advise from pensionwise it is free of charge.

Thank you. He's going to have to chase these things himself once he's well enough - at the moment, I can't ask as it's not my pension - hence asking here - I can ask generalised questions. I'm just trying to get some ideas to work with, to make plans.

Thanks also to Albermarle for a similar suggestion. I'll return to this thread and follow these links when he's home and we can work on it together.

Marcon

Malthusian wrote: »

Unless it's a defined benefit pension or has special guarantees in place, it makes no difference. People under age 55 who are too ill to carry on with work can take their pension earlier than the standard 55 if the scheme rules allow. But he's already over 55 so that's irrelevant.

Not necessarily. The pension provider may be flagging the point that anyone in poor health may qualify for the (unpleasantly named) 'impaired life annuity'. In other words, if their illness means their life expectancy may be lower than someone in normal health, they could get a better annuity rate (i.e. a bigger pension).

BooJewels

Marcon wrote: »

Not necessarily. The pension provider may be flagging the point that anyone in poor health may qualify for the (unpleasantly named) 'impaired life annuity'. In other words, if their illness means their life expectancy may be lower than someone in normal health, they could get a better annuity rate (i.e. a bigger pension).

The actual wording is:

"You may be able to access your pension earlier if you're unable to work due to ill-health. If you think you might qualify and want to take your benefits please call us and we'll give you more details"

This follows on from the section about how you can take your benefits at any age from 55, but must be taken by 75. So I read that 'earlier' as above as younger than 55, as Malthusian originally suggested.

xylophone

there are too many stipulations that we fail on - just being too sick to work and unemployed seems to fall through the cracks.

Are you sure about this?

https://www.gov.uk/employment-support-allowance/eligibility

Try the Benefits Board.

BooJewels

xylophone wrote: »

Are you sure about this?

https://www.gov.uk/employment-support-allowance/eligibility

Try the Benefits Board.

I've just been looking again since I posted and ESA seems the only one with potential, but at the moment, we have just enough savings to prevent us claiming. Give us some time and that will soon disappear, as that's what we're living on. And at £70 for a round trip taxi fare to visit him will rapidly eat away at that - although I'm clearly not going every day at that price.

I'm not going to post on the Benefits board at the moment as there are questions they're likely to ask that I don't want to post in public. Some areas, by definition, end up being too personal. We have an allocated specialist nurse and she has already said she'll discuss this with us when my husband is anywhere close to coming home.

xylophone

Not long term disabled enough for PiP

From what has been said on the benefits board, it is not so much about long term disability as how whatever conditions your husband has affect his ability to carry out certain tasks.

This is aimed at children but from what I gather, the questions are much the same for adults.

https://skybadger.co.uk/2017/08/11/personal-independence-payment/?gclid=EAIaIQobC!!!!cmI3uKS5wIVibTtCh0sWw4bEAAYASAAEgJSO_D_BwE

It might be worth discussing with his nurse.