Advice please re old pension pot

Juz

Hi , hope someone much wiser than me can give some guidance. I am 57 and state pension wise I am fully paid up when I check so all good for when I am 67 *touch wood*, I am in the NHS pension so that is slowly building for retirement and happy that will be enough by the time I get to 67 as well, as started late

However I am carrying quite large debt currently and whilst I can service it, things have got a little tighter with cost of living increases but still can just manage all payments.

So my question is I have a Contracted out pension pot that I must have done years ago and hasnt been paid in for since 1996, its value is 26K and seems to be reducing year on year with 500 pound management fees,

If I took this pot now am I right in saying I would get approx. £17k after tax which would help get rid of some of my card debt to allow me to pay off the other debts quicker (as would free 700 a month) as think that would be way more beneficial rather than projected £1k a year pension when 65 in this fund.

But I am unsure if I did this it would have a knock on with my NHS pension because I have taken a pension pot elsewhere so I would be taxed somehow..

Dazed_and_C0nfused

Juz said:

Hi , hope someone much wiser than me can give some guidance. I am 57 and state pension wise I am fully paid up when I check so all good for when I am 67 *touch wood*, I am in the NHS pension so that is slowly building for retirement and happy that will be enough by the time I get to 67 as well, as started late

However I am carrying quite large debt currently and whilst I can service it, things have got a little tighter with cost of living increases but still can just manage all payments.

So my question is I have a Contracted out pension pot that I must have done years ago and hasnt been paid in for since 1996, its value is 26K and seems to be reducing year on year with 500 pound management fees,

If I took this pot now am I right in saying I would get approx. £17k after tax which would help get rid of some of my card debt to allow me to pay off the other debts quicker (as would free 700 a month) as think that would be way more beneficial rather than projected £1k a year pension when 65 in this fund.

But I am unsure if I did this it would have a knock on with my NHS pension because I have taken a pension pot elsewhere so I would be taxed somehow..

Given you haven't said if you earn £8,000 or £80,000 not sure how you expect anyone can possibly know that 🤔.

Are you happy for MPAA to be triggered (for any future DC contributions, no impact on normal NHS scheme)?

Marcon

Juz said:

Hi , hope someone much wiser than me can give some guidance. I am 57 and state pension wise I am fully paid up when I check so all good for when I am 67 *touch wood*, I am in the NHS pension so that is slowly building for retirement and happy that will be enough by the time I get to 67 as well, as started late

However I am carrying quite large debt currently and whilst I can service it, things have got a little tighter with cost of living increases but still can just manage all payments.

So my question is I have a Contracted out pension pot that I must have done years ago and hasnt been paid in for since 1996, its value is 26K and seems to be reducing year on year with 500 pound management fees,

If I took this pot now am I right in saying I would get approx. £17k after tax which would help get rid of some of my card debt to allow me to pay off the other debts quicker (as would free 700 a month) as think that would be way more beneficial rather than projected £1k a year pension when 65 in this fund.

But I am unsure if I did this it would have a knock on with my NHS pension because I have taken a pension pot elsewhere so I would be taxed somehow..

You'll be able to take 25% of your £26K pension pot tax free, and the balance will be added to your other income for the year and taxed at your marginal rate. If adding nearly £20K to this year's income would push you into a higher rate tax bracket, then it might make sense to take the funds spread over this tax year and next. Whether your (now very old) contract allows that is another matter - you might need to transfer to a more modern personal pension contract.

If you 'flexibly access' anything in excess of the 25% tax free cash from a defined contribution scheme, you trigger the Money Purchase Annual Allowance and are permanently limited to a maximum of £10K contributions per annum (including tax relief on personal contributions, plus any employer contribution) to a defined contribution scheme.

The NHS scheme is a defined benefit scheme, so triggering the MPAA has no impact on the benefits from the main NHS scheme.

As always, just because you can do something doesn't necessarily mean it's a good idea...and just to be quite certain, are you sure you already have a full state pension 'in the bag'?

MallyGirl

as you are in a DB pension you wouldn't be affected by the MPAA - a limit which would kick in when you take any of the taxable element.
You haven't given any numbers - detail would help.
How much cc debt is incurring interest - would the £6.5k 25% tax free bit make enough of a dent?
Would taking the £19.5k taxable income push you into higher rate tax (if you aren't already there)?

QrizB

Juz said:

So my question is I have a Contracted out pension pot that I must have done years ago and hasnt been paid in for since 1996, its value is 26K and seems to be reducing year on year with 500 pound management fees,

£500 a year on £26k is almost 2%. Can you give some more details? Which pension company is it with?

Juz

Hi it is Reassure. Re other queries I am on 80k salary and CC are coming in at nearly 1.2k per month repayments against 38k debt. According to gov.uk I have 39 years of full contributions.

Marcon

Juz said:

Hi it is Reassure. Re other queries I am on 80k salary and CC are coming in at nearly 1.2k per month repayments against 38k debt. According to gov.uk I have 39 years of full contributions.

But you've also been contracted out - what exactly does your statement say about state pension?

Juz

Your forecast

is not a guarantee and is based on the current law

is based on your National Insurance record up to 5 April 2023

does not include any increase due to inflation

£203.85 is the most you can get

You have:

39 years of full contributions

10 years to contribute before 5 April 2033

2 years when you did not contribute enough

QrizB

Juz said:

£203.85 is the most you can get

OK, that confirms that you have already earned a full new state pension.

Juz said:

Hi it is Reassure. Re other queries I am on 80k salary and CC are coming in at nearly 1.2k per month repayments against 38k debt. According to gov.uk I have 39 years of full contributions.

Could the ~£20k taxable element of your old DC pension bump you over £100k of taxable income and have unfortunate tax consequences?

Albermarle

So my question is I have a Contracted out pension pot that I must have done years ago and hasnt been paid in for since 1996, its value is 26K and seems to be reducing year on year with 500 pound management fees,

It would be unusual to say the least that its value reduces year on year, even with what seem very high fees.

These pensions are normally invested in the financial markets, so you expect some ups and downs but not a steady decline.

Even before you decide what you want to do it could be a good idea to read the paperwork/look at the website/call them to see what the withdrawal options are. The older the pension the more limited the options usually.

In the longer term you plan to manage on a NHS pension ( with not many years) and a state pension, but you are struggling now whilst earning £80k pa. Maybe something that needs some thought going forward.

xylophone

This is an old pension so in order to organise flexible access, you would almost certainly need to transfer it to a modern plan.

For example, you might transfer to a SIPP. If you start now, the transfer might be accomplished in the current tax year.

Example

https://www.hl.co.uk/partners/search/self-invested-personal-pension?partners=1&theSource=PCHLS&Override=1&adg=G+HLBS+HLS+NLP&gad_source=1&gclid=EAIaIQobChMItvKLrJfRgwMV5YpoCR22GwGUEAAYASAAEgJNA_D_BwE

You might then take the  tax free 25% Pension Commencement Lump Sum and use this to reduce your debts.

The balance is income and will be taxed a s such when drawn down

HL do not charge for keeping the pension in cash.

You might draw down as much as will not take you into a higher tax band in the current and future tax years and apply the proceeds to reducing your debt.

Presumably you will be able to pay off the balance as quickly as possible from income?

Once that is done, you might consider increasing pension contributions which is very tax efficient for a higher rate tax payer.