Advice on small pension pot, please...

MartianTom

Hello folks,

I just wondered if anyone could give me some advice regarding a small pension pot that I have, please.

Just some quick background... I currently work part-time on a low income (£15k) and also have a monthly pension of £73 net. This is a Civil Service pension which I cashed in when I was 55 (needed the extra at the time). My tax code is 1275L. I have some savings, but under £10k (it's basically emergency money, but I haven't needed to touch it in recent years - and also haven't added to it). I opted out of SERPS in 1994 and have a small pension pot with the Prudential, which is currently worth £15k. I'm 63 now and qualify for my state pension in 2026. I'm a council tenant, live within my means and currently claim no benefits. I also do not pay into any kind of employment pension scheme. I don't need a high income to live, clearly, and am happy enough on the money I receive.

I can't think that that £15k pension pot (which I can draw at 65) will yield much in terms of a monthly pension. I know the options I have on it - that I can draw up to 25% as a tax-free sum if I so wished, but any figure above that would be taxable at the usual rate. I've been thinking about cashing it all in and buying a camper-van to use when I do actually retire. There's not really any other way that I'd be able to afford one otherwise. So if I took that option, the first £3,750 would be tax-free, and I'd then pay 20% tax on the remainder - leaving me with £9k net from that.

My question is... if I take that option, is it likely to affect my taxation for the year in any way? As I see it, it would amount to my total income for the year still being below the threshold for the next tax band. In total, it would be under £28k net income. As it's a pension though, would HMRC regard it as a 'monthly pension payment' and assess it over the year in that regard - putting the total income assessment as well over £100k? I know that may sound like a daft question - the pension money would already have been taxed, after all - but I know that HMRC can work in mysterious ways with these things, and I don't want to find that they've adjusted my tax code accordingly for a higher income bracket.

I'd be grateful for any advice anyone can offer me on the subject.

Thanks in advance.

Dazed_and_C0nfused

MartianTom said:

Hello folks,

I just wondered if anyone could give me some advice regarding a small pension pot that I have, please.

Just some quick background... I currently work part-time on a low income (£15k) and also have a monthly pension of £73 net. This is a Civil Service pension which I cashed in when I was 55 (needed the extra at the time). My tax code is 1275L. I have some savings, but under £10k (it's basically emergency money, but I haven't needed to touch it in recent years - and also haven't added to it). I opted out of SERPS in 1994 and have a small pension pot with the Prudential, which is currently worth £15k. I'm 63 now and qualify for my state pension in 2026. I'm a council tenant, live within my means and currently claim no benefits. I also do not pay into any kind of employment pension scheme. I don't need a high income to live, clearly, and am happy enough on the money I receive.

I can't think that that £15k pension pot (which I can draw at 65) will yield much in terms of a monthly pension. I know the options I have on it - that I can draw up to 25% as a tax-free sum if I so wished, but any figure above that would be taxable at the usual rate. I've been thinking about cashing it all in and buying a camper-van to use when I do actually retire. There's not really any other way that I'd be able to afford one otherwise. So if I took that option, the first £3,750 would be tax-free, and I'd then pay 20% tax on the remainder - leaving me with £9k net from that.

My question is... if I take that option, is it likely to affect my taxation for the year in any way? As I see it, it would amount to my total income for the year still being below the threshold for the next tax band. In total, it would be under £28k net income. As it's a pension though, would HMRC regard it as a 'monthly pension payment' and assess it over the year in that regard - putting the total income assessment as well over £100k? I know that may sound like a daft question - the pension money would already have been taxed, after all - but I know that HMRC can work in mysterious ways with these things, and I don't want to find that they've adjusted my tax code accordingly for a higher income bracket.

I'd be grateful for any advice anyone can offer me on the subject.

Thanks in advance.

Because of how PAYE works with large one off pension payments it would likely have too much tax deducted when paid out but you would get that back in due course from HMRC.

On a more important note why aren't you currently in an auto enrolment scheme 😳.

And you can't have "cashed in" the civil service pension if you you are currently receiving regular pension payments from if.

Albermarle

I think the 'overtaxation' will be less if you take it later in the tax year, say in February.

xylophone

I currently work part-time on a low income (£15k) 

Why are you not a member of the workplace pension scheme?

 my state pension in 2026. 

Have you obtained a state pension forecast?

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

Re taking the Pru pension

https://adviser.royallondon.com/technical-central/pensions/benefit-options/emergency-tax-and-lump-sum-withdrawals/

MartianTom

Thank you all for your advice, and for the links.

I used the wrong term regarding my Civil Service Pension.  I meant that I surrendered it at 55 because at the time I needed the small lump sum it gave me.  It wasn't huge as I was only in the Civil Service for 5 years.

I have not been in a workplace pension scheme for years, and feel that by joining one now - just 3 years from retirement - it isn't going to be worth very much to me.  For the most part of my working life, I have worked in low income roles such as - for the last 17 years - social care.  I have had a state pensions forecast, and there will be a small shortfall between my current income and my state pension.  I accept that, and there's little I can do about it.  If I have to continue working part-time, then I do.  I can't think that joining a workplace pension now will make much of a difference.

Again, thank you all.

Brie

MartianTom said:

I have not been in a workplace pension scheme for years, and feel that by joining one now - just 3 years from retirement - it isn't going to be worth very much to me.  

I started a new very part time job a few months back that included the option of enrolling in NEST with my employer contributing an extra 8% (I think) to it.  I'm not likely to be in the job for more than 3 years as I'm already 64.  So what this pension will accrue will be extra tiddly.  But my thinking is I won't notice the bit deducted from my pay and why should I miss out on the extra the employer is adding?  I think I calculated I'll be lucky if the whole pot is even £1500 in 3 years but of that I think about £1000 will be from the employer.  So bonus!!!

Dazed_and_C0nfused

MartianTom said:

Thank you all for your advice, and for the links.

I used the wrong term regarding my Civil Service Pension.  I meant that I surrendered it at 55 because at the time I needed the small lump sum it gave me.  It wasn't huge as I was only in the Civil Service for 5 years.

I have not been in a workplace pension scheme for years, and feel that by joining one now - just 3 years from retirement - it isn't going to be worth very much to me.  For the most part of my working life, I have worked in low income roles such as - for the last 17 years - social care.  I have had a state pensions forecast, and there will be a small shortfall between my current income and my state pension.  I accept that, and there's little I can do about it.  If I have to continue working part-time, then I do.  I can't think that joining a workplace pension now will make much of a difference.

Again, thank you all.

Your logic just doesn't make sense.

You are giving up the opportunity for free money from your employer and, depending on the method used for your own contributions, either missing out on pension tax relief or possibly paying more income tax than you need to. 

It may not mount up to a huge amount but even if it only ends up being say £1,000 then that is £1,000 you will almost certainly of only cost you a fraction of that after taking into account tax relief and employer contributions.

You don't have to buy a pension for life with a DC pension fund, you could take it all in one go of you wished.  

MartianTom

Brie said:

MartianTom said:

I have not been in a workplace pension scheme for years, and feel that by joining one now - just 3 years from retirement - it isn't going to be worth very much to me.  

I started a new very part time job a few months back that included the option of enrolling in NEST with my employer contributing an extra 8% (I think) to it.  I'm not likely to be in the job for more than 3 years as I'm already 64.  So what this pension will accrue will be extra tiddly.  But my thinking is I won't notice the bit deducted from my pay and why should I miss out on the extra the employer is adding?  I think I calculated I'll be lucky if the whole pot is even £1500 in 3 years but of that I think about £1000 will be from the employer.  So bonus!!!

I may look into it, then.  My new employer - likely to be my last one! - is my local authority, so I know the pension scheme is good.  I don't earn much, but it's enough to cover my needs.  I know when I started the job in September, the pension contribution was over £40 a month, which was a lot for me.  But I can manage it.  Thanks.

MartianTom

Also, I will qualify for Pension Credit, which is separate from the state pension.

Brie

Have a look at the rules for "trivial" pensions.  I believe they are/were treated differently than other pensions.  It might apply to the £15k one you have as well as whatever you might accrue if you join the current one. 

xylophone

Also, I will qualify for Pension Credit, which is separate from the state pension.

Are you sure of this?

https://www.ageuk.org.uk/globalassets/age-uk/documents/factsheets/large-print-factsheets/fs48-lp-pension-credit.pdf

What exactly does your State Pension Forecast say?