Advice for taking small work pension.

steve808

Silvertabby said:

steve808 said:

Silvertabby said:

NedS said:

steve808 said:

Albermarle said:

Your tax calculation is not correct as if she did want to take it as a lump sum, 25% of it would be tax free.
So it should be £22.5K + £2K = £24.5K minus personal allowance of £12,500 ( actually £12570) = £12K taxable at 20% = £2.4K in tax 
She has a workplace pension worth around £30,000 which she hasn't taken at all yet. 
Taking this monthly would result in very small monthly payments, and therefore she really just wants to get it all out in one lump sum.
I am presuming this is a DC pension ( i.e. not a DB/final salary scheme) and there is an actual pot of money there of £30K.
In this case the pension does not have be paid in monthly payments and could for example be paid in tranches , say a lump sum once a year for 5 years for example, to spread it out. It might be necessary to transfer the pension out to do this though, as older pensions have less flexibility.

If it is a DB/final salary scheme then that changes everything.

Ah yes the 25% tax free, I'd forgotten about that. Thank you very much.

I believe it is a DC pension, it's quite an old one, she hasn't actually paid into it on over 15 years. The statement gives her 3 options. I don't have the paperwork with me, but it's roughtly
1. £1,200 a year,
2. £6,000 tax free lump sum and then £850 a year
3. £30,000 'Trivial Commutation' lump sum.

I'm not sure what 'trivial commutation' means.

That sounds more like a Defined Benefits (DB) pension.

Definitely a DB (final salary) scheme.

To be eligible for trivial commutation, the amount offered must be under £30K AND OP's mum must not have any other pension benefits (other than the State pension) which would take her over the £30K limit.

If taken, 25% of the trivial commutation lump sum would be tax free, and it is likely that the pension provider will automatically deduct tax from the remaining 75%.  OP's mum will then have to apply to HMRC for a tax refund, if applicable.

Taking the lump sum wipes out all other pension benefits from the fund, including a spouse's pension should she predecease her husband.

One point - mentions that this lady is due her State pension 'next year' but if she is 64 now, then her State pension age will be 66.

Ok so definitely a DB, thanks.
The last statement we have was actually 4 years ago and the total was around £28,000, so I'm thinking it could have grown to be close to or even just over £30k now. It sounds like this will make a big difference if its over or under? What happens if it's just over £30,000?

She doesn't have any other pensions. She's not worried about losing the other pension benefits, like spouces pension, because my Dad already gets more than enough from his own pensions to cover himself if her death preceeded hers.

She is 65 in March so will be 66 next year and start getting State pension as I understand it.

If the pension increases by at least CPI in deferment then, yes, she's busted and will only have the options of an annual pension or a tax free lump sum and a smaller annual pension.

Is this a public sector pension?  If so, while only the LGPS offers the option of a transfer out, she is past the age limit for that.  If not public sector, then the chances of getting a sign off from an IFA/pensions specialist is remote.

Further to marcon's comment about transfer values dropping recently, that may only apply if the pension is a private sector scheme, as public sector cetvs/commutation factors are set by GAD.

Ah ok, thank you very much.

It is not public sector, it is from Sainsburys (who use 'Towers Watson').

She has requested an updated statement so she'll know exactly what it is hopefully within the next week.

It sounds like if it is over £30,000 it'll be best just to take the small lump sum and the monthly payments option. (They don't actually 'need' to get it all out, it's just she'd have preferred to rather than keep getting silly little amounts every month).

I don't think on such a relatively small amount it's worth paying for a financial advisor.

I never thought we'd actually be hoping the pension pot hasn't grown! lol

Dazed_and_C0nfused

steve808 said:

Silvertabby said:

steve808 said:

Silvertabby said:

NedS said:

steve808 said:

Albermarle said:

Your tax calculation is not correct as if she did want to take it as a lump sum, 25% of it would be tax free.
So it should be £22.5K + £2K = £24.5K minus personal allowance of £12,500 ( actually £12570) = £12K taxable at 20% = £2.4K in tax 
She has a workplace pension worth around £30,000 which she hasn't taken at all yet. 
Taking this monthly would result in very small monthly payments, and therefore she really just wants to get it all out in one lump sum.
I am presuming this is a DC pension ( i.e. not a DB/final salary scheme) and there is an actual pot of money there of £30K.
In this case the pension does not have be paid in monthly payments and could for example be paid in tranches , say a lump sum once a year for 5 years for example, to spread it out. It might be necessary to transfer the pension out to do this though, as older pensions have less flexibility.

If it is a DB/final salary scheme then that changes everything.

Ah yes the 25% tax free, I'd forgotten about that. Thank you very much.

I believe it is a DC pension, it's quite an old one, she hasn't actually paid into it on over 15 years. The statement gives her 3 options. I don't have the paperwork with me, but it's roughtly
1. £1,200 a year,
2. £6,000 tax free lump sum and then £850 a year
3. £30,000 'Trivial Commutation' lump sum.

I'm not sure what 'trivial commutation' means.

That sounds more like a Defined Benefits (DB) pension.

Definitely a DB (final salary) scheme.

To be eligible for trivial commutation, the amount offered must be under £30K AND OP's mum must not have any other pension benefits (other than the State pension) which would take her over the £30K limit.

If taken, 25% of the trivial commutation lump sum would be tax free, and it is likely that the pension provider will automatically deduct tax from the remaining 75%.  OP's mum will then have to apply to HMRC for a tax refund, if applicable.

Taking the lump sum wipes out all other pension benefits from the fund, including a spouse's pension should she predecease her husband.

One point - mentions that this lady is due her State pension 'next year' but if she is 64 now, then her State pension age will be 66.

Ok so definitely a DB, thanks.
The last statement we have was actually 4 years ago and the total was around £28,000, so I'm thinking it could have grown to be close to or even just over £30k now. It sounds like this will make a big difference if its over or under? What happens if it's just over £30,000?

She doesn't have any other pensions. She's not worried about losing the other pension benefits, like spouces pension, because my Dad already gets more than enough from his own pensions to cover himself if her death preceeded hers.

She is 65 in March so will be 66 next year and start getting State pension as I understand it.

If the pension increases by at least CPI in deferment then, yes, she's busted and will only have the options of an annual pension or a tax free lump sum and a smaller annual pension.

Is this a public sector pension?  If so, while only the LGPS offers the option of a transfer out, she is past the age limit for that.  If not public sector, then the chances of getting a sign off from an IFA/pensions specialist is remote.

Further to marcon's comment about transfer values dropping recently, that may only apply if the pension is a private sector scheme, as public sector cetvs/commutation factors are set by GAD.

Ah ok, thank you very much.

It is not public sector, it is from Sainsburys (who use 'Towers Watson').

She has requested an updated statement so she'll know exactly what it is hopefully within the next week.

It sounds like if it is over £30,000 it'll be best just to take the small lump sum and the monthly payments option. (They don't actually 'need' to get it all out, it's just she'd have preferred to rather than keep getting silly little amounts every month).

I don't think on such a relatively small amount it's worth paying for a financial advisor.

I never thought we'd actually be hoping the pension pot hasn't grown! lol

As it's a DB pension she doesn't have a "pension pot".

The scheme are offering (subject to the latest valuation) to pay her a lump sum and in return they won't have the responsibility/cost of paying her the pension she has accrued.

Albermarle

(who use 'Towers Watson').

She has requested an updated statement so she'll know exactly what it is hopefully within the next week.

Just be aware that these pension administrators often work at snails pace, so within the next month might be more realistic.

Marcon

Albermarle said:

(who use 'Towers Watson').

She has requested an updated statement so she'll know exactly what it is hopefully within the next week.

Just be aware that these pension administrators often work at snails pace, so within the next month might be more realistic.

...and be aware that the statutory timeframe for supplying a CETV quote is 'within 3 months of the request', although one hopes it won't take that long.

Silvertabby

Marcon said:

Albermarle said:

(who use 'Towers Watson').

She has requested an updated statement so she'll know exactly what it is hopefully within the next week.

Just be aware that these pension administrators often work at snails pace, so within the next month might be more realistic.

...and be aware that the statutory timeframe for supplying a CETV quote is 'within 3 months of the request', although one hopes it won't take that long.

I think that OP is hoping that the updated statement will have a value of less than £30K, so mum can take a trivial commutation.

xylophone

 she has paid to top up national insurance to make sure she gets full state pension.

Has your mother obtained a state pension forecast?

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

If so, what exactly does it say?

xylophone

If the pension increases by at least CPI in deferment then, yes, she's busted and will only have the options of an annual pension or a tax free lump sum and a smaller annual pension.

It seems that mother left service around 2008.

 The revaluation in deferment for excess over any GMP seems to be  RPI up to 5% for pensionable service pre 6 April 2009. 

https://www.yumpu.com/en/document/read/38784129/final-salary-section-sainsburys-pensions-website

Silvertabby

xylophone said:

If the pension increases by at least CPI in deferment then, yes, she's busted and will only have the options of an annual pension or a tax free lump sum and a smaller annual pension.

It seems that mother left service around 2008.

 The revaluation in deferment for excess over any GMP seems to be  RPI up to 5% for pensionable service pre 6 April 2009. 

https://www.yumpu.com/en/document/read/38784129/final-salary-section-sainsburys-pensions-website

Good point.  I used the public sector PI tables, which doesn't apply caps.  Inflation has been relatively low from 2008 to date, but OP's mum MAY just sneak in under the £30K limit.

Hope they update with the result!

steve808

Silvertabby said:

xylophone said:

If the pension increases by at least CPI in deferment then, yes, she's busted and will only have the options of an annual pension or a tax free lump sum and a smaller annual pension.

It seems that mother left service around 2008.

 The revaluation in deferment for excess over any GMP seems to be  RPI up to 5% for pensionable service pre 6 April 2009. 

https://www.yumpu.com/en/document/read/38784129/final-salary-section-sainsburys-pensions-website

Good point.  I used the public sector PI tables, which doesn't apply caps.  Inflation has been relatively low from 2008 to date, but OP's mum MAY just sneak in under the £30K limit.

Hope they update with the result!

I'll definitely come back and let you know the outcome. Thanks for all your advice.

steve808

Silvertabby said:

xylophone said:

If the pension increases by at least CPI in deferment then, yes, she's busted and will only have the options of an annual pension or a tax free lump sum and a smaller annual pension.

It seems that mother left service around 2008.

 The revaluation in deferment for excess over any GMP seems to be  RPI up to 5% for pensionable service pre 6 April 2009. 

https://www.yumpu.com/en/document/read/38784129/final-salary-section-sainsburys-pensions-website

Good point.  I used the public sector PI tables, which doesn't apply caps.  Inflation has been relatively low from 2008 to date, but OP's mum MAY just sneak in under the £30K limit.

Hope they update with the result!

As promised I am back with the result.

We were able to get a login to access the account online and I have a new 'Quote'

The option of the Trivial Commutation has now disappeared, so I think it's safe to say it's now over £30,000 (although it doesn't actually give me a total value of the pension).

The annual payments are now significantly higher than the old statement (which was actually 2018!)

The options now are to...
1- Take £1,700 per year (£141 p/m)
2- Take £8,000 tax free and £1,200 per year (£100p/m)
3- Transfer to another pension plan

I think the 2nd option looks ok, but my mother, being a pessimist, doesn't think she's going to live any more than another 10 years, even though there's nothing wrong with her, lol (there's no reasoning with her). And as discussed before my dad is 8 years older and has a good pension himself so wouldn't need the death benefits even if she goes before him (they would also be tiny anyway).

Therefore, she is now interested on Option 3!

So, as I understand it, she could transfer it all to a different scheme and then 'draw down' on that almost whenever she likes, likes £5,000 per year until it's all gone for example. Is that correct?

Also, I'd love to know (very roughly) how much money would get eaten out of the pension by a financial advisor and the new pension provider. If it's going to cost thousands I think that would put her off, but if it'll only be couple of percent, or less than a grand I think she'd like to do this option.

Thanks for reading.