Should I cash in a pension early to repay debt

Lankylocky

 I have 12k card debt (3k on 3 x 0% credit cards till March 2025 + 3k on 15% purchase credit card). Plus 2k overdraft. ( 50k left on mortgage.  I'll leave mortgage out of this). The cc & overdraft debt are getting me down. Racked up through combination of stagnant  wage, Growing teens, single parent  & no emergency fund. Used cards for many car & household problems. But definitely some reckless spending too! I'm late 50's and can take from 2 of my pensions now or when I'm 60. I'm thinking of cashing in one small 8k one to put aside an emergency fund if 2k and pay the rest off of some cards. Or could take 25% cash from another one now rather than 3 years time, problem is that'd give me 11k cash & £200 pm now rather than  17k and 400 pm  in 3 years. The appeal of being able to clear everything now is huge but not sure if that's a mistake? I'd still have another 2 pensions ( plus the state one) at retirement age.     

[font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]

Number of adults in household........... 1

Number of children in household......... 2

Number of cars owned.................... 1[b]

Monthly Income Details[/b]

Monthly income after tax................ 2100

Partners monthly income after tax....... 0

Benefits................................ 96

Other income............................ 200[b]

Total monthly income.................... 2396[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 550

Secured/HP loan repayments.............. 40

Rent.................................... 0

Management charge (leasehold property).. 0

Council tax............................. 140

Electricity............................. 100

Gas..................................... 85

Oil..................................... 0

Water rates............................. 66

Telephone (land line)................... 0

Mobile phone............................ 17

TV Licence.............................. 13

Satellite/Cable TV...................... 0

Internet Services....................... 30

Groceries etc. ......................... 400

Clothing................................ 25

Petrol/diesel........................... 140

Road tax................................ 14

Car Insurance........................... 25

Car maintenance (including MOT)......... 60

Car parking............................. 10

Other travel............................ 0

Childcare/nursery....................... 0

Other child related expenses............ 180

Medical (prescriptions, dentist etc).... 5

Pet insurance/vet bills................. 0

Buildings insurance..................... 20

Contents insurance...................... 20

Life assurance ......................... 38

Other insurance......................... 120

Presents (birthday, christmas etc)...... 50

Haircuts................................ 15

Entertainment........................... 100

Holiday................................. 0

Emergency fund.......................... 60[b]

Total monthly expenses.................. 2323[/b]

[b]

Assets[/b]

Cash.................................... 0

House value (Gross)..................... 400000

Shares and bonds........................ 0

Car(s).................................. 1500

Other assets............................ 0[b]

Total Assets............................ 401500[/b]

[b]

Secured & HP Debts[/b]

Description....................Debt......Monthly...APR

Mortgage...................... 48000....(550)......0

Secured Debt.................. 400......(40).......0[b]

Total secured & HP debts...... 48400.....-.........-   [/b]

[b]Unsecured Debts[/b]

Description....................Debt......Monthly...APR

card interest..................12000.....200.......0

overdraft......................2000......33........0[b]

Total unsecured debts..........14000.....233.......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 2,396

Expenses (including HP & secured debts). 2,323

Available for debt repayments........... 73

Monthly UNsecured debt repayments....... 233[b]

Amount short for making debt repayments. -160[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 401,500

Total HP & Secured debt................. -48,400

Total Unsecured debt.................... -14,000[b]

Net Assets.............................. 339,100[/b]

[i]Created using the SOA calculator at www.LemonFool.co.uk.

Reproduced on Moneysavingexpert with permission, using other browser.[/i][/font]

Karonher

If most is on 0% I would not touch the pensions. Pay of the card charging interest and the overdraft, then startpayomg down the other cards. If there is still a lot to pay when the 0% is about to end, then think about it. There should be a lot less owed then. 

Just a few questions about the SOA. Are the children under 18 or is it that they are your children? Could you cut the food budget a little, and if possible the childrelated expenses? Is council tax ocer 12 months and are you entitled to a single person discount? Is it possible to get a better price for the other insurance? The same for contents insurance. I have just paid less than £50 a year not the near £250 yours is costing.

Lankylocky

Thanks for your comments. Most is on 0% so yes I guess it makes better sense to leave the 0% ones for now & think again when 0% is ending. 
My children are under 18. I do need to try harder with food bill but teens eat so much. The child expenses are because they do a lot of sport. Subs cost, £60 pm, school dinners, 1 has tutor for £30 pm which will end in April, pocket money £10 each, mobile phone 30 , budget for school uniform replacement etc). I've started buying sports footwear on Vinted.   I get single person discount on Council Tax. 
   My buildings & contents insurance together is £40 pm so I split it £20/£20.  I quoted on various sites in August but the joint policy has gone up since lst year when I paid £35 for buildings & contents. I'll look again to see what quotes look like now.
Hmm 'other' insurance of £120 pm - I pay £60 pm for an old 'Dread disease' policy and £40 pm for accident, sickness & unemployment policy. I've had both since my 20's and am scared to cancel them  or switch to new company incase something happens and I need them. I think they're probably very,very expensive now and not sure what to do about them

SandyShores

I think it all depends firstly on whether you have your borrowing under control.  We paid off about £20k worth of credit cards on a remortgage but unfortunately our spending habits hadn't changed so a couple of years later we had built back up to £20k worth of credit cards.  So when we received a small inheritance we paid off the cards again, only to find they built up again.  So finally we sold our house and paid the cards off a third time, only a few years later (surprise surprise) to find we had built up £20k of credit cards again - and that didn't include the car loans!.  Third time and I finally had a lightbulb moment and started following Dave Ramsey's baby steps, setting and following budgets and putting all my efforts into paying off the credit cards and loans.  When we had about £8k left to pay we received a PPI payment and used that to finally say good bye to debt.  But my advice would be unless you have your spending under control don't raid your pension to pay off credit, which will in all likelihood build up again.  

We still use credit cards but they are paid off in full every month and once we were at that point I did take a pension early but it provided a deposit for us to buy a house.  Firstly I did the calculations to compare receiving 5 years of early pension at a reduced rate vs waiting and receiving the the full amount.  In my case the break even point was around 83 years old which I was prepared to live with and secondly putting the lump sum into a house has definitely paid off.  (I'm also in a good position where I have another pension I am paying into).

I'm not sure of your age/pension details, but for example if you were 57 years old now and took an early pension of £2,400 per year plus £11k, by the time you are 60 years old (year 3) you would have received gross £18,200.  In year 4 you would receive another £2,400 so total of £20,600.  But if you waited until aged 60 to receive your pension, in that year you will receive £17k plus £4,800 so a total of £21,800 (£1,400 more than taking it early).  Plus every year afterwards there will be a £2,400 difference.

If you had your spending under control/were well on the way to becoming credit free, then freeing up the lump sum and having a bit of additional income in the form of a small pension could be really helpful.  But if you are still living beyond your means and using credit its probably not the best thing to do.
 

enthusiasticsaver

The overdraft needs tackling. Is that really 0% as normally they are 40% and the most expensive way of borrowing. The 0% cards are not so much of an issue but you also have a budget shortfall so are you still using cards/overdraft to live? The lack of emergency funds is also a worry given you have a low value car, a house and two children. 

Your  budget is tight. What is your sickness policy at work? How secure is your job? I think I would be tempted to cut those insurances first before drawing on the pension. Can some of the children’s expenses be reduced and groceries? 

If you cash in the £8k one you will pay tax on it after the 25% tax free sum and yes often if you crystallise by drawing on them you reduce the overall benefits. Have you done a cash flow spreadsheet showing when all your pensions pay out and how much? What overall effect would it have on your finances in retirement? How old are your teens and what is the plan for working and paying off your mortgage? I assume your normal retirement age is 67-68? 

I would normally say never draw early on your pension but given your soa looks pretty tight and you have a shortfall it wouldn’t be the worst idea if you have other pensions and you can guarantee not to build the cards/overdraft up again. Check with your pension administrators as to the actual benefits though including tax implications. 

Floss

Check your company sickness pay policy, and see if your income protection policy can be amended to align with that - for example, I'm in the NHS and my IP pays out partially when I go onto half pay, then fully when my pay ends.

WYSPECIAL

Work out what income you want in retirement and what you currently will have. 
If you already have more than you will need at the age you plan to retire then accessing some of it now will make more sense.
Have you taken taxation into account when comparing what you will get by taking it early/ waiting? The £11k/£17k lump sum will be tax free but the £200/ £400 per month will be taxable. Since the state pension pretty much uses up all of your tax allowance, and your salary will now you will actually benefit by either £160 or £320 per month. Over the life of the pension you could pay a lot more tax by taking the higher amount at a later date.

Check out what will be paid out by your employer if you die or become too ill to work. You may find now you are older with less outstanding on the mortgage, more saved in old pensions and your dependant children are older that there is enough already to meet their needs without extra insurance.

EssexHebridean

Lots of good input already around the debt and how best to tackle it. I’m interested to look more at your SOA though - and the first obvious question is how solid is your budgeting now? 

You mention now putting money side for emergency fund and a number of other things - but are showing no cash assets. Have these just been missed or are they not in place? 

How much are you budgeting to spend at Christmas and how much do you have saved ready for that spending? That’s something it’s important to think about right now because you have a very limited timescale to change anything there, and often lack of funds (or indeed, lack of a budget!) are one of the primary drivers for people reaching for credit around this time of year. If you don’t already have a budget, then time now to sit down, make a list of everyone you need to buy presents for, and an amount you wish to spend against each one. Then work out what your budget will be for the ancillary stuff - additional food (I ordered my Christmas turkey yesterday - ouchy!) , and any travel that needs factoring in too, visiting friends or relatives for example. Add up the totals - does the amount align with the money you have saved (or will have by the time it is needed)? If not, then you either need to find a way of saving additional money, or adjust your planned spending.
When is your car due for its service, or MoT, or needing new tyres? Do your current car savings align with being on target to meet those expenditures?

Others have already made references to where you might be able to save - groceries as you realise is an obvious one, but yes, I hear you on hollow-legged teens! Have a think about good cheap snacks to help plug the gaps - and don’t be afraid of feeding them carbs either. (Ideally with a balance towards more whole grain than white - but to an extent it comes down to what they will eat, I realise). The Old Style board on here could be a good resource for you - a lot of the regulars over there either have gannets…sorry, teens…of their own, or have been here for long enough that they know what works. Also beware of generally falling victim to food demonising - carbs aren’t “bad” (you will smell a rotten potato a mile off, and that’s the only “bad” that has any relevance when it comes to food 😉) and sugar certainly isn’t “toxic” - if it was the human race would have died out years ago as sugar is vital to us for survival! Kids - and particularly teens - are very absorbent of that sort of rhetoric though - and that in turn often makes them even harder to feed. On the snacks front, think about where you. An make stuff more cheaply than buying, and set our rules around snacks (ie “For snacks this week there is this, this and this. When those things are gone, there will be no more until Saturday, so you need to make them last. Those are the only things available in the fridge/cupboards to help yourselves too - everything else is accounted for so please don’t just eat anything else!” 

Definitely bear in mind that you do NEED to make adjustments to the budget - as you are currently showing an over spend, so this is one to tackle sooner rather than later. 

sourcrates

You have a total of 4 private pensions, is that right? 
Plus your state pension, you are aware you can take the full balance of all your private pensions as cash, if you so chose, once you reach 55?

You get 25% of any lump sum tax free, the rest is taxable at your normal rate.

If they add up to a reasonable amount I see no reason why you shouldn`t clear your debts with one of them, that still leaves you with a significant sum of money I would assume.

TheAble

How much do you have in the other two pensions?

Angelica123

At the moment, it looks like you are still running at a shortfall budget-wise. It doesn't feel like there would be much benefit to cashing out the pension if the debt is likely to re-accumulate. I think the priority is really to work on the budget. 

I would consider stopping paying into your income protection/critical illness insurance. At this point, if you could not work due to illness, you could just cash your pension early. (And if you have been on the same policy since your 20s - it's possible that you may not meet the eligibility for a payout anyway).

I wonder if it would be possible to encourage your kids to start taking odd jobs to pay for some of their expenses like mobiles. It sounds like you are fighting hard to give them every opportunity. But a lot of the child-related expenses do sound like luxuries rather than necessities. I say this as someone whose dad was made redundant when I was a teenager (my parents had limited emergency friends) - my sibling and I ended up taking jobs to pay our way through university. 

Similarly, is there any way to cut down on entertainment/gift expenses? Is the car a necessity?