Taking 100% of pension pot

remyroo

My husband has a small Aviva pension which at the moment is worth £35000. He has been told the pension will only be worth about £80 a month when he is 65. He will be 55 in June and is considering taking the full amount as a lump sum. I understand 25% will be tax free and 75% will be taxed at 20% (his income plus lump sum for 21/22 tax year will be under £50000) so would be looking at about £29000.
I know in most situations it’s advisable to only take the tax free amount but because the pot is so small is this still the case.
Any advice would be greatly appreciated.
Thanks

Dazed_and_C0nfused

What other pension provision does he have?

Would this pension be something he could use as a bridging pension?  For example if he can retire comfortably from age 67 he could maybe finish work say 3 years early and use this pension to bridge the gap from early retirement to normal pension age whilst saving c£5k in tax.

mazworld15

I'm not an expert by any means remy but we've been trying to find someone to tfr hubby's CETV to a SIPP and it's a nightmare, no IFA (so far) will do it, there's lots of threads about it.

El_Torro

The real question is does he have a plan for that £29k lump sum? If he's just going to stick it in a savings account then he's probably better off taking the money in stages and spreading out the tax owed.

The quoted £80 a month at age 65 is probably what Aviva are quoting if he wants to buy an annuity. He doesn't have to choose between taking it all at 55 or buying an annuity at 65. There are options in between these two extremes.

NedS

Assuming it is a DC pension, taking any amount of taxable income will trigger MPAA and he will be limited to only paying a maximum of £4000/year into a pension going forward. This may nit be an issue if he is planning to retire, but if he plans to carry on working and contributing to his current pension scheme this could be quite limiting.

remyroo

Please bear with me as I know very little about pensions. A bit of background information. My husband was contracted out of serps between1993 and 2005 which resulted in this pension so no additional payments have been made since 2005 however am I right in thinking that this investment could still continue to grow obviously depending on the stock market.

NottinghamKnight

remyroo said:

Please bear with me as I know very little about pensions. A bit of background information. My husband was contracted out of serps between1993 and 2005 which resulted in this pension so no additional payments have been made since 2005 however am I right in thinking that this investment could still continue to grow obviously depending on the stock market.

Yes, whilst it remains invested it will generate returns in line with the investments. Would be useful to know what it is invested in, seems a bit silly to cash in and pay large tax amounts and limit future contributions, but there's no need to by an annuity, and it may be advantageous to transfer it, the other thing to look at is what the charges currently are as that can affect returns significantly. 

dunstonh

He has been told the pension will only be worth about £80 a month when he is 65

That doesn't seem accurate.   If its £35k now, then a 4% draw rate on that is £116pm NOW.   In ten years time without any more contributions, it could be double that.
So, either he has been told incorrectly or is misunderstanding what he has been told.

however am I right in thinking that this investment could still continue to grow obviously depending on the stock market.

yes
At the moment, he is potentially looking at doing something that is not in his best interested based on misinformation or misunderstanding.  Can you find out where he got these figures from?

LHW99

He has been told the pension will only be worth about £80 a month when he is 65.

Is this because Aviva have assumed he will buy an annuity? Most people don't do that now,but the Aviva pension might not allow drawdown if it is an old one.

Albermarle

mazworld15 said:

I'm not an expert by any means remy but we've been trying to find someone to tfr hubby's CETV to a SIPP and it's a nightmare, no IFA (so far) will do it, there's lots of threads about it.

This is completely irrelevant to this thread, which is about cashing in a DC pensions, not transferring a DB one .
Have a read of this thread towards the end .( last couple of pages)Who will accept a DB to SIPP transfer from "insistent client" - Page 7 — MoneySavingExpert Forum

Thrugelmir

£80 a month for an index linked annuity is probably in the ball park at current rates. Secure income comes at a price. Whereas stock market investments always face the risk of a serious fall. Hence the premium for holding them.