cash in or not

Banger1

My daughter-in-law is considering cashing in an old pension pot of approx. £10,000. It is not being invested into now and is doing little. She intends to add it to the Sipps, that she has just started to invest into for a pension. Although the Sipps have just started, she will not retire for another 35 years. The existing Sipps get the benefit from Government tax relief, although the pension cash will not, is it correct a person can cash in any pension that is below £30,000, but cannot remember if they are taxed on the full amount or not. Thanks for any help

Stubod

..not sure you can cash in a pension pot under age of 55?...maybe transfer?

bolwin1

You are confusing things by using the term cashed in, which is usually used when someone is withdrawing all of the funds from the pension. As  previously mentioned, you can't do this until you are 55 (& this will likely increase at some point in the future) 

If you are simply looking at moving from an existing pension to a SIPP, then providing the existing pension is a defined contribution one & does not have any safeguarded benefits, then this should be straightforward. You would need to contact your SIPP provider & start the process with them. It is worthwhile comparing the costs of the pensions to ensure this is the best thing to do. 

If the existing pension is a defined benefit or has safeguarded benefits, it's a lot more complicated. 

Marcon

bolwin1 said:

If the existing pension is a defined benefit or has safeguarded benefits, it's a lot more complicated. 

Not really - it's below £30K so advice isn't required. Given the lady in question has 35 years to go to retirement, the chances of this 'pot' having a GAR must be about zero. The fact OP has referred to a pot strongly suggests it is a DC scheme.

OP, before your daughter in law transfers, has she looked at the other investment options open to her within the old scheme? Just because she's left doesn't mean the funds have to languish in the same funds they were in while she was contributing to the pot.

dunstonh

As she is 35 years away from retirement, it is fair to assume she is under 55.  So, any of the post age 55 options will not apply to her.  i.e. she cannot cash it in.
Her options are to leave it where it is or transfer it.

gm0

There is a risk here of confusing a few different things and mechanisms which were introduced for different purposes at different times.

1 Transfer out (moving a pension for more investment choice, to consolidate them).  Ends up in a new pension. No new tax relief (already had it). Lose protection of insured occupational scheme and move to 85k protection on SIPP if that's the target.  Costs may go down or up.  Investment choice will be a lot wider which matters or it doesn't.

2. Taking the pension as cash (UFPLS full fund).  25% tax free. Rest taxed income tax in that year. Only possible at retirement age for private pensions.  55 now.  Rising with a trajectory towards State Pension -10.  Nothing legal or legitimate is possible below this age.

3. Small pots rules (again at retirement age) there are rules to allow easier admin of tiny old pension savings

4.  Refund of contributions.  This is not the same as 1.  There was a set of rules (I am not current on this) where you could after a brief period of employment and below a £/time threshold - reverse back out of a pension and get your money back.  Not all the money.  Your money.  And the conditions around it were fairly narrow as well as it being unattractive in terms of loss of other top ups.  I don't think you can make off with the contributions (yours and employers, the tax relief) and then put it in again (Pension Recycling).  It's designed to stop that so far as is practical

So Scenario 1 is the only scenario likely to be applicable or attractive.

AnotherJoe

Banger1 said:

My daughter-in-law is considering cashing in an old pension pot of approx. £10,000. It is not being invested into now and is doing little. She intends to add it to the Sipps, that she has just started to invest into for a pension. Although the Sipps have just started, she will not retire for another 35 years. The existing Sipps get the benefit from Government tax relief, although the pension cash will not, is it correct a person can cash in any pension that is below £30,000, but cannot remember if they are taxed on the full amount or not. Thanks for any help

As said, her options are to transfer it,or  leave it where it is and change the funds it's invested in. Maybe its "not doing anything" because it's invested in poor funds. Often people end up in a default selection, usually high % U.K. and very cautious. With 35 years to go she should be in a global higher risk fund. 

There will be no "cashing in"  because she's not 55+

Note that to transfer it, she would contact the company she would transfer to, and they will deal with the mechanics. But to reiterate, transfer is not a magic wand, it needs to be invested properly, or the same money will languish in its new home.