Cashing in a small works pension

segovia

My wife is considering cashing in a small works pension, she left her Job last October and was advised to wait until April for the new Tax year.  The value is circa 10K. She is also a partner in a rental property portfolio and a Director of my Limited Company, she makes personal contributions from the property into a SIPP and the Ltd Company also makes contributions into her SIPP. We have been advised, when the small pension is cashed in any future personal and company pension contributions are capped at 4K a year, Is that correct ?

QrizB

segovia said:

My wife is considering cashing in a small works pension ...  The value is circa 10K. ... We have been advised, when the small pension is cashed in any future personal and company pension contributions are capped at 4K a year, Is that correct ?

Yes, perhaps.

What is the value of the "small works pension", is it above £10k or below £10k?

Bimbly

If the pension is 10k or less you can withdraw it under the "small pots rule". 25% will be free of tax and the rest will be taxable. This will not effect your ability to make further pension contributions. (You can do this for up to three small pot pensions).

If the pension is more than 10k, you can cash it in. The first 25% will be tax free and the rest will be taxable. BUT this will limit future pension contributions (other than defined benefit "final/average salary" type schemes) to a total of 4k per year. This is called the Money Purchase Annual Allowance (MPAA).

Regardless of the amount, you could transfer it all to your SIPP. You could keep it all invested there. Or you could decide to take up to 25% tax free from this SIPP which wouldn't trigger the MPAA. So you potentially get a bigger tax free sum without penalty. But the 75% remaining would be "crystallised" and any growth on that pension would be taxable when you take it out. So watch out for that one.

You have to be at least 55 years old to withdraw any money from your pension.

segovia

QrizB said:

segovia said:

My wife is considering cashing in a small works pension ...  The value is circa 10K. ... We have been advised, when the small pension is cashed in any future personal and company pension contributions are capped at 4K a year, Is that correct ?

Yes, perhaps.

What is the value of the "small works pension", is it above £10k or below £10k?

Above 10K but only just

segovia

Bimbly said:

If the pension is 10k or less you can withdraw it under the "small pots rule". 25% will be free of tax and the rest will be taxable. This will not effect your ability to make further pension contributions. (You can do this for up to three small pot pensions).

If the pension is more than 10k, you can cash it in. The first 25% will be tax free and the rest will be taxable. BUT this will limit future pension contributions (other than defined benefit "final/average salary" type schemes) to a total of 4k per year. This is called the Money Purchase Annual Allowance (MPAA).

Regardless of the amount, you could transfer it all to your SIPP. You could keep it all invested there. Or you could decide to take up to 25% tax free from this SIPP which wouldn't trigger the MPAA. So you potentially get a bigger tax free sum without penalty. But the 75% remaining would be "crystallised" and any growth on that pension would be taxable when you take it out. So watch out for that one.

You have to be at least 55 years old to withdraw any money from your pension.

Is the MPAA the value of the entire pension pot or just the value of what is taken, for example if she took 25% of the 10K and left the remainder invested she could still make contributions  to her SIPP?

OldBeanz

Transfer the money to Hargreaves Lansdown and they will allow you to take £10k as a small pot if you ask them. As you are allowed to access 3 small pots then either leave the amount over £10k to add to or use up the 2nd pot with the small amount left. 

TELLIT01

Is Hargreaves Lansdown really such a good choice?  There have been reports of multiple complaints against them recently.  I don't know the detail, just recalled the name and had a quick search on Google.

QrizB

segovia said:

QrizB said:

segovia said:

My wife is considering cashing in a small works pension ...  The value is circa 10K. ... We have been advised, when the small pension is cashed in any future personal and company pension contributions are capped at 4K a year, Is that correct ?

Yes, perhaps.

What is the value of the "small works pension", is it above £10k or below £10k?

Above 10K but only just

If it's above £10k you can't take it as a small pot (unless you split it using HL or AN Other pensions company).

If you don't take it as a small pot then yes, your wife will be affected by the MPAA and will be limited to £4k contributions per year thereafter.

segovia said:

Is the MPAA the value of the entire pension pot or just the value of what is taken, for example if she took 25% of the 10K and left the remainder invested she could still make contributions  to her SIPP?

The MPAA applies once you take any part of the taxable cash from a DC pension. If she only takes the tax-free 25% she'll avoid the MPAA.

Notepad_Phil

TELLIT01 said:

Is Hargreaves Lansdown really such a good choice?  There have been reports of multiple complaints against them recently.  I don't know the detail, just recalled the name and had a quick search on Google.

Hargreaves Lansdown is a massive company and so will get more complaints than smaller companies, plus whether those compaints are justified or not may be a matter of opinion - I think a lot of them will be about people believing that they advised them to invest in a fund that lost people money.

I used Hargreaves myself for small pots and they were fantastic as far as I was concerned, Mrs Notepad uses them too as do many other people on this forum, but its up to you to decide.

ps wherever you to decide to go to, make 100% sure that the pension is taken as a 'small pot' and not simply as a UFPLS or drawdown of £10,000 or less.

dunstonh

Above 10K but only just

That means you cannot use the small pots rule on it.   As mentioned above, you could transfer it to a provider that has the ability to segment the pension into multiple segments and then use the small pots that way.

 She is also a partner in a rental property portfolio and a Director of my Limited Company, she makes personal contributions from the property into a SIPP and the Ltd Company also makes contributions into her SIPP. 

Is it worth cashing it in?   Would it not be better to transfer it to her SIPP rather than pay tax unnecessarily.

Albermarle

Is it worth cashing it in?   Would it not be better to transfer it to her SIPP rather than pay tax unnecessarily.

Or alternatively just leave it where it is for a later date . It might even drop in value below £10K at some point.