This is not for everyone but may help someone clear their debt

SSTJCKel

This may help someone but its not for everyone so tread carefully............. I had nearly 18k of debt until a few months ago and was paying a lot of interest on it because I could not get any 0% transfer deals and because having this debt gave me a poor credit rating I could not get a loan to pay it off at a decent interest rate. But I happened to be doing a review of my pensions and spent some time tracking down some lost pensions (more info on doing this on the Pensions board). I found a couple of low value pensions which I haven't paid into for years one of which had 22k in it. You can take 25% of a pensions value tax free and have to pay tax on the rest. The projected value of this pension on retirement meant I would receive a couple of hundred pounds a year so I figured I wasn't losing a significant amount from my pension pot. I decided to cash in this pension and received about £16k after tax. The result is I now only owe approx £1800, my credit rating has gone up by quite a lot, I am getting 0% card deals offered again and im now paying very little in interest on whats left and the big worry about how I would continue to pay this debt off, as I am 5 years off retirement, is gone so my mental health is in a much better place. I am also saving all that money that I used to pay in interest so I am in a much better place. As an aside I happened to mention this to a friend who had never considered falling back on a pension as an option so I just thought I would mention it here in case it helps anyone.
***WARNING - This isn't for everyone and cashing in a pension is a serious thing to do so don't rush into it and take advice !

[Deleted User]

Like you said, not for everyone. I personally wouldn't cash in a pension to pay off debt, but we all have our own ways of dealing with it.

Supertryer

I think you made a good choice!
Well done 💙

ncybernut

Hello, how is this possible? I thought you could not touch your pension until retirement?

Vinknut

You can access it after you are 55, you don't have to retire.
If you're under 55, and use a pension liberation scheme, you could stand to lose the majority of your pension pot.
OP, how old are you and how much tax did you pay?  Normally there's a 20-30% fee for this sort of thing, and then HMRC charge you up to 55% of the whole pot because it's an unauthorised payment: https://www.gov.uk/tax-on-pension/higher-tax-on-unauthorised-payments
By my calcs, that 22k should have yielded approximately £4.4k in fees and then £12.1k in tax, leaving you with just £5.5k in your pocket.
Please tell me you are over 55...?

SSTJCKel

Not true Vinknut. You pay no tax on the first 25%. Then you are taxed at your standard rate on the rest. It is classed the same as income so if receiving this takes you into the next tax bracket thats what tax rate you pay. I believe you are correct that you can only do this once you are 55 (I am 62). The pension provider deducts tax based on the worst case and then you have to claim back any overpayment. So after taking all the above into account my 22k pension became a payout of circa 16.5k. As I said not for everyone but having been trying to reduce my debt and build a small nestegg for some years and failing due to unemployment etc I decided to do this for my own peace of mind. If you talk to the pension company they give you an illustration of what payout you will get but also they don't just send you the money on request you have go through a couple of steps so they can make sure you are doing the right thing first.

Vinknut

My apologies, I assumed you were under 55 because what you are talking about is a fairly standard way of cashing in a pension, but you made it sound like it was out of the ordinary. You don't have to buy an annuity. You don't have to enter into a drawdown agreement. You can just take it all in one go.
I'm just glad you're over 55!

SSTJCKel

Vinknut said:

My apologies, I assumed you were under 55 because what you are talking about is a fairly standard way of cashing in a pension, but you made it sound like it was out of the ordinary. You don't have to buy an annuity. You don't have to enter into a drawdown agreement. You can just take it all in one go.
I'm just glad you're over 55!

I wish I was under 55 lol

Paperback_Writer

SSTJCKel said:

This may help someone but its not for everyone so tread carefully............. I had nearly 18k of debt until a few months ago and was paying a lot of interest on it because I could not get any 0% transfer deals and because having this debt gave me a poor credit rating I could not get a loan to pay it off at a decent interest rate. But I happened to be doing a review of my pensions and spent some time tracking down some lost pensions (more info on doing this on the Pensions board). I found a couple of low value pensions which I haven't paid into for years one of which had 22k in it. You can take 25% of a pensions value tax free and have to pay tax on the rest. The projected value of this pension on retirement meant I would receive a couple of hundred pounds a year so I figured I wasn't losing a significant amount from my pension pot. I decided to cash in this pension and received about £16k after tax. The result is I now only owe approx £1800, my credit rating has gone up by quite a lot, I am getting 0% card deals offered again and im now paying very little in interest on whats left and the big worry about how I would continue to pay this debt off, as I am 5 years off retirement, is gone so my mental health is in a much better place. I am also saving all that money that I used to pay in interest so I am in a much better place. As an aside I happened to mention this to a friend who had never considered falling back on a pension as an option so I just thought I would mention it here in case it helps anyone.
***WARNING - This isn't for everyone and cashing in a pension is a serious thing to do so don't rush into it and take advice !

I also did some pension tracing and discovered a really small one that's sitting at £7k. Like you, this would mean a rather small yearly pension so this December when I turn 55, I intend to take the lot, reclaim the emergency tax and clear my final loan. No brainer for me as I also have a public sector pension. As you said, not for everyone, but in the right circumstances it's a good thing in my opinion.