Somewhat confused over options

Blue_Parrot

I'm in the last year of a 3-year personal finance agreement with VW Finance. I've got the 'settlement' figure and had a long talk with a human being there (which is worth noting). It seems that if I pay £5,000 now, I'll reduce the monthly payments from £300+ to only £50 (!) and the final payment will be moved to next June and would be about £8,000 instead of about £12,000. I'm ok with all of that.

However, I'm also cashing in a small pension under Trivial Commutation which would yield in total about £18,000. But this will take weeks to process.  Initially I thought I'd pay VW Finance £5,000 from this and save the rest into either my ISA or a joint savings account until I'm due to pay VW Finance the final payment.

But I already have this £5,000 in my ISA (which contains way more than that). Why not shunt over £5,000 now, then wait for the pension company to pay out, then replace that into the ISA?

I don't know why I'm dithering so much. The only thing I can think of is that I've always regarded the ISA pot as somehow inviolable in my head. It's a place to pay IN to, not to take OUT of. But the money is there, it's all mine, life is way too short, so go for it. I've got to pay VW Finance either partly now or entirely next year.

(To save anyone asking, it would be financially mad to do anything other than keep this car, so that's what we're doing.)

Many thanks for any helpful clarification.

DrEskimo

Why just £5,000? Pay off the entire thing, there is no need to wait till the final payment is due.

Will save you much more in interest.

When you say your money is in an ISA, do you mean a fixed savings account, or stocks and shares ISA? If fixed savings account, what is the interest rate you are earning?

What is the APR you are paying on the finance? No real reason in sitting on savings earning less than you paying in interest on debt.

Herzlos

Assuming you're not near hitting the £20k ISA limit, then there's going to be no penalty for lifting money now and putting it back in in a few months, unless you've got one with conditions on withdrawls etc.

Blue_Parrot

Many thanks for the replies. It makes sense to pay off this car finance entirely, so I'm now trying to get (my) money out of the pension company. At first they didn't send enough paperwork. Then I phoned and was kept on hold for nearly an hour. THEN they said they couldn't go further on that phone call, I had to read about 100 pages which were emailed to me, then phone back. A person would go bald with the amount of hair being pulled out.

Nil desperandum, I'll have to phone again tomorrow and give up another hour of my life listening to Vivaldi's Spring about 35 times, and "Your call is important to us" about 80 times.......and THEN the Inland Revenue will end up over-taxing me by about £2,000 and it will probably take me the rest of my life to claw that back.

MEM62

Blue_Parrot said:

Many thanks for the replies. It makes sense to pay off this car finance entirely, so I'm now trying to get (my) money out of the pension company. At first they didn't send enough paperwork. Then I phoned and was kept on hold for nearly an hour. THEN they said they couldn't go further on that phone call, I had to read about 100 pages which were emailed to me, then phone back. A person would go bald with the amount of hair being pulled out.

Nil desperandum, I'll have to phone again tomorrow and give up another hour of my life listening to Vivaldi's Spring about 35 times, and "Your call is important to us" about 80 times.......and THEN the Inland Revenue will end up over-taxing me by about £2,000 and it will probably take me the rest of my life to claw that back.

Your pension is there to finance your retirement.  Withdrawing sums from it to pay for a car purchase is far from the most prudent of financial decisions.  

Blue_Parrot

MEM62 said:

Your pension is there to finance your retirement.  Withdrawing sums from it to pay for a car purchase is far from the most prudent of financial decisions.  

This is a tiny employer pension (£21,000) which hasn't started. Plus, I never paid a penny into it, so it's "free money". If I somehow agreed to make that into a minuscule extra pension for myself, it would pay about - I don't know - £100 a year? which would not be much use. We have two state pensions and a private pension, but many thanks for your concern.

DrEskimo

What about the ISA? You mention that was where the £5,000 was coming from, and that you have more than that in that account?

MEM62

Blue_Parrot said:

MEM62 said:

Your pension is there to finance your retirement.  Withdrawing sums from it to pay for a car purchase is far from the most prudent of financial decisions.  

This is a tiny employer pension (£21,000) which hasn't started. Plus, I never paid a penny into it, so it's "free money". If I somehow agreed to make that into a minuscule extra pension for myself, it would pay about - I don't know - £100 a year? which would not be much use. We have two state pensions and a private pension, but many thanks for your concern.

Based on a 5% return it is more like £1,000 per year - the first 25% of which will be tax free.  

Blue_Parrot

It's a good thing I cashed in this tiny pension, as the fund value went down twice since I started this a couple of weeks ago. They have paid up (hooray) but my calculations reveal that I've now paid over £2,500 too much in tax. (Which I knew would happen.)

Question: does anyone know how long it takes a pension company to provide the P45 I'll need to get this back from HMRC?

And to answer DrEskimo's earlier point, I'm now going to pay off the car finance loan entirely. Fortunately the pension company have provided j.u.s.t enough. Then I'll be £300+/month better off.