Transfer options from workplace DC pension to support ill health claim and cash payout

EmmaG71

Hello, I’m 51 years old and have incurable Stage IV cancer and am seeking ways to extract some of my workplace DC pension without restricting the amount my employer or myself can continue to pay in over the next couple of years.  I’ve been told I have a few years to live and I’m being well paid for potentially the next 5 years, due to an excellent income protection insurance plan. 

I’ve looked at taking 25% TAX free from my current provider under their ill health provision, but this as I understand it would mean that the remaining balance gets restricted and also my employer and myself would then be limited to just £4k pa contributions, which would not be viable for me. 

I am therefore hoping for advice on whether I can transfer out some of my pension pot into an entirely new pension plan with a new provider, then using the ill health (or serious ill health) provision, take out some or all of this cash. However, the crucial thing I need to ensure is that my workplace pension contributions (which are quite substantial), can continue unaffected. Is this possible? And if so, with whom should I be looking for the new plan? Also, are there any other restrictions or implications that I should be aware of?

Many thanks in advance
Emma

Linton

See https://www.gov.uk/early-retirement-pension/personal-and-workplace-pensions for the rules on taking your pension early before age 55.  Unfortunately they dont seem to apply to your situation as it appears that you are still working, nor do they appear to give any indication that moving the pension to a different provider would help.

squirrelpie

EmmaG71 said:

I’ve looked at taking 25% TAX free from my current provider under their ill health provision, but this as I understand it would mean that the remaining balance gets restricted and also my employer and myself would then be limited to just £4k pa contributions, which would not be viable for me.

Sorry to read of your situation. As Linton says, you probably can't do anything except contribute and prepare before you are 55. But I think you've misunderstood the rules that I quote you stating above. You can take your tax-free cash, once you're 55, without affecting subsequent contributions. But as soon as you take even 1p of taxable benefit from the pension, contributions to your pension are limited to £4000pa (for tax relief). Look up MPAA for more detail. I've assumed you have a defined contribution pension; the rules are different for defined benefit.

Albermarle

You are only restricted to £4Kpa contributions in future, if you take any taxable income . If you only take the 25% tax free then the £4K limit ( known as the MPAA) does not apply.

However it seems very unlikely you could access any of your pension yet,  unless your illness got worse/you were forced to stop work.

xylophone

I’ve been told I have a few years to live 

 Under normal circumstances, at age 55* (currently) it is possible to take the ONLY  the 25% PCLS from a DC pension and provided the balance is left within the pension, NOT trigger the Money Purchase Annual Allowance.

Would  the scheme administrator/the employer permit you to transfer some part (even the bulk) of your workplace pension to a SIPP in preparation for taking the PCLS from it at age 55?

You would then still be a member of the workplace scheme and contributions would continue as normal?

* The government has confirmed plans to increase the minimum age you can access your pension from 55 – to 57 from 2028. 

Marcon

EmmaG71 said:

Hello, I’m 51 years old and have incurable Stage IV cancer and am seeking ways to extract some of my workplace DC pension without restricting the amount my employer or myself can continue to pay in over the next couple of years.  I’ve been told I have a few years to live and I’m being well paid for potentially the next 5 years, due to an excellent income protection insurance plan. 

I’ve looked at taking 25% TAX free from my current provider under their ill health provision, but this as I understand it would mean that the remaining balance gets restricted and also my employer and myself would then be limited to just £4k pa contributions, which would not be viable for me. 

I am therefore hoping for advice on whether I can transfer out some of my pension pot into an entirely new pension plan with a new provider, then using the ill health (or serious ill health) provision, take out some or all of this cash. However, the crucial thing I need to ensure is that my workplace pension contributions (which are quite substantial), can continue unaffected. Is this possible? And if so, with whom should I be looking for the new plan? Also, are there any other restrictions or implications that I should be aware of?

Many thanks in advance
Emma

If you've not yet done so, check if taking cash from your pension (especially before age 55 on health grounds) would impact on your income protection policy.

Happily you don't qualify for serious ill health (which only applies if your life expectancy is certified by a medical practitioner to be no more than 12 months). 

Drawing your pension before 55 would mean a medical practitioner certifying that you are too ill to work again (or whatever the rules of your scheme specify - it will be something similar), which might be true. The fact you appear to be drawing income from the income protection insurance suggests you aren't working?

As others have pointed out, if you take only tax free cash, then the £4K a year limit doesn't apply. Nor does it apply if you take cash and use it to buy an annuity - and given your health situation, that might be a viable option (you'd qualify for something which goes by the nasty title of 'impaired life annuity').

Alternatively, you could potentially transfer up to £30,000 from your pension scheme into 3 separate pots, each of no more than £10K at the time you cash in each one, using the 'small pots' regime. That doesn't trigger the MPAA. Again, you'd need medical confirmation of your ill health status. 

Do get some proper financial advice. There may well be various options open to you, but nobody here has enough information to give any definitive answers, and certainly not enough to help you seek out an annuity if you conclude that might be something you wish to consider.

coyrls

Does income from income protection insurance qualify as relevant earnings for pension contributions?  If it doesn't then you won't be able to maintain the level of your existing pension contributions.