Should I cash in 1 pension to clear debt?

sams247

I have two pensions, none very big at all.  The one from an old work is worth £4800 cash in value they tell me.  I am aware I'd pay tax on 75% of that although I dont get the figures of what that means!

I have some debts and am starting to prepare for my retirement in 9 years time.  I thought I might cash in the old pension and clear my debts.

Is this wise?

MallyGirl

sams247 said:

I have two pensions, none very big at all.  The one from an old work is worth £4800 cash in value they tell me.  I am aware I'd pay tax on 75% of that although I dont get the figures of what that means!

I have some debts and am starting to prepare for my retirement in 9 years time.  I thought I might cash in the old pension and clear my debts.

Is this wise?

No it is not wise. As soon as you take taxable income from a pension then that limits what you can contribute to a pension in the future (for the rest of your working life).
If you really must then you can take the 25% tax free element.

Steve_666_

Understanding your debt would help, if its credit card level interest, than this must be your priority

xylophone

No it is not wise. As soon as you take taxable income from a pension then that limits what you can contribute to a pension in the future (for the rest of your working life).

If the total value of the pension is just £4800 and can be taken as a "small pot", then the future pension contributions would not be limited by MPAA.

https://techzone.abrdn.com/public/pensions/Guide-triviality-small-pots

The OP should check with the pension provider on whether the pension can be taken in this way.

Marcon

sams247 said:

I have two pensions, none very big at all.  The one from an old work is worth £4800 cash in value they tell me.  I am aware I'd pay tax on 75% of that although I dont get the figures of what that means!

I have some debts and am starting to prepare for my retirement in 9 years time.  I thought I might cash in the old pension and clear my debts.

Is this wise?

Depends on how much the indebtness is costing you in terms of interest. If the rates are very high then paying it off might make sense - and perhaps put the monthly saving which would then follow into a pension scheme ready for your retirement, getting tax relief on your contributions to help?

Albermarle

sams247 said:

I have two pensions, none very big at all.  The one from an old work is worth £4800 cash in value they tell me.  I am aware I'd pay tax on 75% of that although I dont get the figures of what that means!

I have some debts and am starting to prepare for my retirement in 9 years time.  I thought I might cash in the old pension and clear my debts.

Is this wise?

I think it depends to some extent what preparing for retirement means. Do you mean you have other financial assets to fund your retirement ?

sams247

My debt is not huge, but it is something I'd like to clear, and it is a car loan.  

I have read all the advice thank you and feel my best route might be to take the non tax potion and pay a lump off the loan.  When I say I'm preparing for retirement I mean I dont want any debts, I want a mental health peaceful status and I will be doing all I can to save over the next 9 years.

WYSPECIAL

sams247 said:

My debt is not huge, but it is something I'd like to clear, and it is a car loan.  

I have read all the advice thank you and feel my best route might be to take the non tax potion and pay a lump off the loan.  When I say I'm preparing for retirement I mean I dont want any debts, I want a mental health peaceful status and I will be doing all I can to save over the next 9 years.

Check the details of the loan and make sure there are no penalties for making an early repayment, or if there are, factor the cost into your decision.

RogerPensionGuy

WYSPECIAL said:

sams247 said:

My debt is not huge, but it is something I'd like to clear, and it is a car loan.  

I have read all the advice thank you and feel my best route might be to take the non tax potion and pay a lump off the loan.  When I say I'm preparing for retirement I mean I dont want any debts, I want a mental health peaceful status and I will be doing all I can to save over the next 9 years.

Check the details of the loan and make sure there are no penalties for making an early repayment, or if there are, factor the cost into your decision.

This post reminds me of an old friend who paid off a 24 month loan early on a car in the 1980s, he paid a charge on top of all the remaining 18 payments.....