What to do about releasing money from 2 dc pensions

Fuzzy16

OH is 63 next birthday,not clued up on pensions, I know enough to get by but feel he needs some advice.
Pension 1 with Sun Life of  Canada, contributes £58 a month net, pot was worth £27000 4 weeks ago, last week  it had dropped to £24000 no surprise there due to markets. He enquired about taking this as a lump sum but was declined, SL said it was because pot was worth more than £10000 but disappointed as money is needed to go towards paying mortgage off next year when we come off a 5 year fix, estimated balance £34000.

Pension 2 with Aviva, does not make any contributions any more, pot worth £36000, have sent emails to them but no replies and it's been 4 weeks now.
I know he needs financial advice as the higher pot is over 30k, but I was wondering how the 25% lump sum works,could he take 25% out of each pot before april,then another 25% after April?
He is on minimum wage and works around 32 hours, so not big earner.
This is probably looking like best option, keep taking 25% out to move into a high interest account every year, this is once the mortgage has been paid off, we still have not decided if we both want to retire in 3 years yet and unfortunately he does not have any other pensions as has always worked for small family businesses, so he will only be receiving state pension, I have my own pensions to support us.

Any help with this would be appreciated, thanks in advance.

Dazed_and_C0nfused

Did he ask Sun Life if he could take his small pension pot all in one go?

How do you know he needs advice for the Aviva one?  Can you explain the reason why advice is a requirement?

could he take 25% out of each pot before april,then another 25% after April?

No.  He could take 25% upfront, everything left is then taxable when taken.  Or another common option is to take 25% of each payment as the TFLS.  Other options are available.

Fuzzy16

Yes he filled a form out and SL sent him a letter to say he couldn't take it all in one go.
I thought legally you had to take financial advice if your pension pot was worth more than 30k.
What does TFLS mean?

Marcon

wildz said:

OH is 63 next birthday,not clued up on pensions, I know enough to get by but feel he needs some advice.


Pension 2 with Aviva, does not make any contributions any more, pot worth £36000, have sent emails to them but no replies and it's been 4 weeks now.
I know he needs financial advice as the higher pot is over 30k, but I was wondering how the 25% lump sum works,could he take 25% out of each pot before april,then another 25% after April?
He is on minimum wage and works around 32 hours, so not big earner.
This is probably looking like best option, keep taking 25% out to move into a high interest account every year, this is once the mortgage has been paid off, we still have not decided if we both want to retire in 3 years yet and unfortunately he does not have any other pensions as has always worked for small family businesses, so he will only be receiving state pension, I have my own pensions to support us.

Any help with this would be appreciated, thanks in advance.

I'm not sure your understanding is quite correct.

He doesn't need advice 'because the pot is over £30K'. That requirement applies where someone is trying to transfer benefits and the scheme they are in has something known as 'safeguarded rights'.

You are also a bit confused on the lump sum issue. If someone has a DC 'pot' they can take up to 25% tax free cash; the rest is then taxable when withdrawn. They can take up to 100% of the 'pot' and pay tax on 75% of it, or take it in chunks at a time of their own choosing (known as 'drawdown') provided they are aged at least 55 (57 from 2028).

Maybe the best idea is for your husband (and you, if you wish) to make an appointment with PensionWise: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

dunstonh

Pension 1 with Sun Life of  Canada, contributes £58 a month net, pot was worth £27000 4 weeks ago, last week  it had dropped to £24000 no surprise there due to markets. He enquired about taking this as a lump sum but was declined, SL said it was because pot was worth more than £10000 but disappointed as money is needed to go towards paying mortgage off next year when we come off a 5 year fix, estimated balance £34000.

SLFoC stopped offering services in the UK a number of years back. Their product is a legacy one.  So, it doesnt stop him doing it.  It just stops him doing it with SLFoC.

Pension 2 with Aviva, does not make any contributions any more, pot worth £36000, have sent emails to them but no replies and it's been 4 weeks now.

Aviva are not good on emails and they have a number of legacy companies that still operate out of their original offices but no means to see policies that belong to those of the other offices.   So, an email can take time to get to where it needs to go.  Then you have the issue that Aviva cannot give advice.  So, if the questions were advice or "what should I do" type, then they cannot answer those.

I know he needs financial advice as the higher pot is over 30k, but I was wondering how the 25% lump sum works,could he take 25% out of each pot before april,then another 25% after April?

Advice is only needed if there are safeguarded benefits on the pension and its over £30k.  If there are no safeguarded benefits then advice is not needed.

This is probably looking like best option, keep taking 25% out to move into a high interest account every year, this is once the mortgage has been paid off, 

That doesnt seem like a good idea.  What is the justification for that?

ader42

Good input above and definitely see PensionWise.

But… to give you food for thought…

He could take 25% of the £27k pot tax free - which is £6,750
He could take 25% of the £36k pot tax free - which is £9,000
Total tax free would be £15,750

He could then take any further amounts as and when but pay tax on it.
e.g. Take the remainder of the originally £27k pot (now £20,250 after taking the 25% tax free lump sum ) and pay tax on it - sounds like it would be taxed at 20% so he would be left with £16,200 on top of the £6,750 after paying £4,050 in income tax.

He would be left with £27k in the pot that was £36k before the tax free lump sum drawdown, so he could take more out next financial year (and again pay income tax on it) to totally clear the mortgage.

In my opinion it can often be a good idea to pay off the mortgage as interest saved is as good as interest earnt - both compound. You say OH is 63, so assuming he can get a 3 year repayment mortgage at 6% that would be £1k a month including about £3k in interest. 

Yes in theory if house prices keep going up and stock markets come good again in time keeping the money in the pension might be better mathematically but we all only have a limited number of years above ground and a guaranteed return of 6% (current mortgage rate?) is not to be sniffed at in my opinion given the de-stressing and quality of life improving effect of having the house paid off - that is why I will do similar in the next 18 months. 

Definitely get advice on options and see PensionWise.

xylophone

Have you both obtained state pension forecasts?

https://www.gov.uk/check-state-pension

Your husband might wish to consider  transferring both pensions into a  SIPP that would facilitate taking the combined 25% PCLS and then drawing down the balance as best suited his tax position.

Example

https://www.hl.co.uk/pensions/personal-pensions

squirrelpie

The advice above on what you can and cannot do all has to be qualified by 'if the plan lets you'. Some older plans do not allow you to do things that would nowadays be permitted. If his plans are one of these, he first needs to transfer them to a more flexible modern plan.

House prices are by no means guaranteed to keep going up. Indeed over the next year or two they may go down significantly.

Bimbly

wildz said:

What does TFLS mean?

Tax Free Lump Sum

Fuzzy16

Yes we both have had state pension forecasts, they are ok. We downsized 4 years ago borrowed £61,000 over 11 years fixed for 5 @ 2.29%, when we come off the fixed rate next year if we go on a variable rate, this could be 5% I would have to find another £180 a month on top of the £523 I am already paying. Ideally the option to take 25% out of each pot seems the better option, then take the remaining £20,250 to clear the mortgage, but as I've already said SL will not allow that as it is over £10,000, I suppose he could merge it with the Aviva one? But once you've transferred it how long before you can then access it? 
Then it's what to do with the rest of the Aviva one, reinvest it, or keep taking chunks to put in a higher interest bank account? Or buy an annuity? 
Thanks for all the replies the information has been brilliant. 😃

Marcon

wildz said:

Yes we both have had state pension forecasts, they are ok. We downsized 4 years ago borrowed £61,000 over 11 years fixed for 5 @ 2.29%, when we come off the fixed rate next year if we go on a variable rate, this could be 5% I would have to find another £180 a month on top of the £523 I am already paying. Ideally the option to take 25% out of each pot seems the better option, then take the remaining £20,250 to clear the mortgage, but as I've already said SL will not allow that as it is over £10,000, I suppose he could merge it with the Aviva one? But once you've transferred it how long before you can then access it? 
Then it's what to do with the rest of the Aviva one, reinvest it, or keep taking chunks to put in a higher interest bank account? Or buy an annuity? 
Thanks for all the replies the information has been brilliant. 😃

As soon as the funds have actually been transferred, assuming you transfer to a contract which is flexible enough to allow drawdown.

Remaining questions - Pension Wise can talk you through your options/give you information, which should then enable you to take a better-informed decision (they can't actually advise, any more than anyone on this site can).