Cashing in pensions while working

colcolg

Hi I have no idea where to start so...
Will be 55 next month and can access a couple of pension pots...one is approx £14k lump sum plus about £450 per month and another is £7k lump sum only..was planning on continuing to work and I earn about £32k per annum.
I really want to cash these in to pay off some debt and to do up the house ( i will still have another, main pension pot which i wont touch until im 65).
Does anyone know how this works, what tax I would pay for instance?
Would I pay tax on the monthly 450 and would I pay tax on both the 7k and the 14k pot separately or together and would my salary factor in...apologies, I have no idea where to start.

Many thanks 

dunstonh

.one is approx £14k lump sum plus about £450 per month

Can you clarify if this (and the other) are defined contribution or defined benefit?  

Normally DC pensions are viewed as a fund value. Not as a lump sum and income.  

colcolg

dunstonh said:

.one is approx £14k lump sum plus about £450 per month

Can you clarify if this (and the other) are defined contribution or defined benefit?  

Normally DC pensions are viewed as a fund value. Not as a lump sum and income.  

Hi thanks for your response..this sounds awful but I don't actually know. These are old pensions from previous jobs and I no longer contribute into them.  The £14k plus 450 monthly is an old public sector pension and the other is a sipp pension I believe...does that help??

hyubh

colcolg said:

dunstonh said:

.one is approx £14k lump sum plus about £450 per month

Can you clarify if this (and the other) are defined contribution or defined benefit?  

Normally DC pensions are viewed as a fund value. Not as a lump sum and income.  

Hi thanks for your response..this sounds awful but I don't actually know. These are old pensions from previous jobs and I no longer contribute into them.  The £14k plus 450 monthly is an old public sector pension

Presumably LGPS, otherwise if its NHS/Teachers/Civil Service etc. you wouldn't actually be able to transfer out in the first place...? (Unless very small, you can't just 'cash in' a DB pension, you'd need to transfer out first.)

Marcon

colcolg said:

Hi I have no idea where to start so...
Will be 55 next month and can access a couple of pension pots...one is approx £14k lump sum plus about £450 per month and another is £7k lump sum only..was planning on continuing to work and I earn about £32k per annum.
I really want to cash these in to pay off some debt and to do up the house ( i will still have another, main pension pot which i wont touch until im 65).
Does anyone know how this works, what tax I would pay for instance?
Would I pay tax on the monthly 450 and would I pay tax on both the 7k and the 14k pot separately or together and would my salary factor in...apologies, I have no idea where to start.

Many thanks 

Start by finding out some facts and life will look a lot less perplexing. Some basic reading would help: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics

The old public sector pension is going to be a defined benefit scheme, but are you sure it will pay the figures you are quoting if you take it at 55? That is likely to be at least 10 years before the scheme's normal retirement age, so could be substantially reduced to reflect the fact it is being paid a decade early, so will be paid for 10 years longer than if you'd taken it at 65.

You won't be able to cash it in unless you are able to transfer it out to some form of personal pension - and if it's an unfunded pubic sector scheme you won't be able to transfer at all. If you'd like to say here what the scheme is (no reason not to), someone will be able to confirm.  

Check with the provider what the £7K 'lump sum only' scheme is (there are various possibilities!).

colcolg

Marcon said:

colcolg said:

Hi I have no idea where to start so...
Will be 55 next month and can access a couple of pension pots...one is approx £14k lump sum plus about £450 per month and another is £7k lump sum only..was planning on continuing to work and I earn about £32k per annum.
I really want to cash these in to pay off some debt and to do up the house ( i will still have another, main pension pot which i wont touch until im 65).
Does anyone know how this works, what tax I would pay for instance?
Would I pay tax on the monthly 450 and would I pay tax on both the 7k and the 14k pot separately or together and would my salary factor in...apologies, I have no idea where to start.

Many thanks 

Start by finding out some facts and life will look a lot less perplexing. Some basic reading would help: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics

The old public sector pension is going to be a defined benefit scheme, but are you sure it will pay the figures you are quoting if you take it at 55? That is likely to be at least 10 years before the scheme's normal retirement age, so could be substantially reduced to reflect the fact it is being paid a decade early, so will be paid for 10 years longer than if you'd taken it at 65.

You won't be able to cash it in unless you are able to transfer it out to some form of personal pension - and if it's an unfunded pubic sector scheme you won't be able to transfer at all. If you'd like to say here what the scheme is (no reason not to), someone will be able to confirm.  

Check with the provider what the £7K 'lump sum only' scheme is (there are various possibilities!).

Hi thanks I will definitely read info from the link. I'm embarrassed to realise how little I know.
Yes those amounts for the public sector scheme are correct. It is the teeside pension scheme which has a website where you can easily see what you would get when you cash in...I've also confirmed this over the phone. I haven't paid into this one for at leat 10 years.
I'll check the other smaller one too but it's been about 3 years since I paid into that one.  It's with aegon.
Thank you 

MallyGirl

If the Aegon one is a standard SIPP then 25% of it can be taken tax free but the remaining 75% (£5,250 if it is exactly £7k) will be added to your normal salary and you will pay tax at your normal rate on the combination i.e.20%.

If you can start the public sector one at 55 then you will pay 20% tax on the £450 but the lump sum may well be tax free (not my area of expertise). Taking a pension like this early is rarely a good idea as it is guaranteed income for life and will be much higher if you don't take it early.

NannaH

Isn’t the limit for transferring out of LGPS without needing paid advice £30k ? 
Would OP even be able to get positive advice to be able to transfer?   It must be a largish amount for it to have a £14k lump sum. 
I was only able to transfer my £8k LGPS because it was under the limit and I wasn’t required to take advice. 

MallyGirl

NannaH said:

Isn’t the limit for transferring out of LGPS without needing paid advice £30k ? 
Would OP even be able to get positive advice to be able to transfer?   It must be a largish amount for it to have a £14k lump sum. 
I was only able to transfer my £8k LGPS because it was under the limit and I wasn’t required to take advice. 

I assumed that OP would just initiate the LGPS one rather than trying to transfer it.

Albermarle

OP,
Just on the basis that you are lacking in knowledge about pensions it could be worth just clarifying what this is.

( i will still have another, main pension pot which i wont touch until im 65).

NannaH

I read ‘ cashing it in’ as wanting the lot? 

So what OP actually means is accessing the pension. 

£5400 a year, if that’s the ‘now’ rate, would be a bit more if left until retirement age, or even age 60. 

£54k ( minus over £10k tax) over the 10 years,  against potentially an extra 35% for the whole retirement.  I suppose it depends on whether an  extra £50k ( in todays money)  over say 25 years is worth the wait, plus the gamble of living long enough to break even, which would be when? 

I imagine an extra £4320 a year after tax immediately is very tempting though and if you are servicing debts with a highish interest rate, that £14k tfls would come in handy.

If it were me, I’d think that taking it now was probably worth losing an extra £2k a year later on but then my family don’t seem to live past their late 70’s.  At 57, I see myself as having no more than 25 years, realistically. 

You have to weigh up your own pros and cons.