Cash out one of my pensions

movilla

Hi,

I'm approaching 55 soon and I'm considering cashing out one of my pensions. What with various jobs I've got 4 pensions with varying amounts in them. I have credit card debt which is going down slowly but will probably take around 2 years to completely get to zero. So I'm thinking about cashing out one of them to pay off the credit cards. I'm a higher rate tax payer. Is there any views on this? I intend to then transfer my remaining pensions into just pot.

Thanks.

Pile_o_stone

If you use money from your pensions to finance your lifestyle now, what are you going to use to fund your lifestyle when you retire?

movilla

There would still be a significant amount in the remaining pensions. This would be the smallest pension. The only thing I think would have any adverse effect would be total annual income (I guess a cash out of pension would add to it) would take me over 100K pa hence requiring me to do annual tax returns at HMRC.

bigadaj

You can normally get 25% tax free, however that money is then gone for your future provision. Take any more than the pcls (tax free sum) and you pay tax on it all as if added on to your income, so 40% for you; as soon as you've taken that taxeable sum as well you would be limited to £4k per year for any future pension contributions. 

Dazed_and_C0nfused

And therefore effective tax rate of 60% on some of your income.

movilla

@bigadaj Is there anywhere to read more on the 4k per year details? I'd like to check it out more. Right now I have 2 medium/large pensions, a smaller mid-sized one and a small one. I was looking at cashing out the mid-sized one but I want to be aware on how this could impact the other pensions.

bigadaj

https://www.gov.uk/tax-on-your-private-pension/annual-allowance.
From the horse's mouth.

Sailtheworld

Instead of potentially shafting yourself by limiting future contributions and paying a shedload of tax why not really focus on getting that credit card debt down out from earned income?

Your life expectancy, assuming you're male, at 54 is 84. Seems like you're considering mugging off your future self.

barnstar2077

I am with Sailtheworld on this one.  As you are on a reasonable wage could you knuckle down and clear off the credit card debt a bit sooner?  You will be better off in the future, and hopefully won't ever have to use a credit card again!

xylophone

Are all these pensions DC pensions?  Do any of them have safeguarded benefits?

What is your current pension arrangement?

What is the total amount of the debt? What interest rate are you paying on it?

Do you have a spouse/dependants?

You earn a good salary - is it possible to live frugally for a time and pay down the credit cards over six months say?

dunstonh

'm a higher rate tax payer. Is there any views on this?

So, you would not only lose nearly half the amount drawn in tax you would also start to lose your personal allowance (income over £100k sees your personal allowance reduced).  This is the reference to an effective 60% tax.

You would also reduce the amount that can be paid into a pension in future as well as robbing your retirement years from money to clear debts that you say can be cleared from income within 2 years.

There seems no real justification for doing this.  Just a bunch of negatives.