Questions about taking a lump sum and consolidating pensions

J_forest

Hello,

A family member can access his pensions later this year.  He considers taking a lump sum from each pension but not sure whether he should leave the rest of the pensions until he is 65 or start to withdraw them. Can anyone shed some light on this? Many thanks.

1. If a lump sum is taken, can the rest be left until a certain age or it has to be withdrawn at the same time?

2. If the rest can be left, is there a time limit, say 2 years or 3 years etc?  Any risk? Any fee? Any growth?

3. What happens if he transfers the small pensions to the main one? 

sevenhills

Each pension will have different rules, but leaving until state retirement age is often better, which may be 65 or 67.

It can be beneficial to transfer pensions, some pensions have high charges.

Marcon

J_forest said:

Hello,

A family member can access his pensions later this year.  He considers taking a lump sum from each pension but not sure whether he should leave the rest of the pensions until he is 65 or start to withdraw them. Can anyone shed some light on this? Many thanks.

1. If a lump sum is taken, can the rest be left until a certain age or it has to be withdrawn at the same time?

2. If the rest can be left, is there a time limit, say 2 years or 3 years etc?  Any risk? Any fee? Any growth?

3. What happens if he transfers the small pensions to the main one? 

1. If they are defined benefit (aka final salary, or sometimes CARE), the lump sum and pension need to be taken at the same time - ie when he first accesses his benefits under the scheme in question.
2. If these are defined contribution (DC) schemes, he needs to check the terms of each pension with the relevant provider. Risks, fees, growth (or possible loss!) will be in line with wherever the underlying investments are held - with a DC scheme,  the pension is only a 'tax wrapper' and it is the investments themselves which matter.
3. They will all be in one place (assuming the main one will accept transfers in) and treated accordingly. If the main scheme is DC it'll be one big(ger) pot; if it's a DB arrangement, he would need to check what he'd get if he transferred in.

As to when and how he should access them, it depends on his objectives and cashflow needs. He sounds an ideal candidate for a free appointment with Pensionwise: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

J_forest

Thank you. I will ask him to check with the pension providers.

He definitely wants to withdraw the 25%.  Because he is self-employed, he also hopes to have a stable income, such as the main pension) to pay his bills in quiet months, if the increase is not significant when he is 65 or 67. 

dunstonh

A family member can access his pensions later this year.  He considers taking a lump sum from each pension but not sure whether he should leave the rest of the pensions until he is 65 or start to withdraw them. Can anyone shed some light on this? Many thanks.

The methods and amounts should match his objectives.   So, that would be the place to start.

Just because he can access them doesn't mean he should.  A general rule of thumb is that money in pensions should be left there unless there is a justification otherwise.

J_forest

He is in good health. However he thinks he should access his pension as soon as possible so he can enjoy it. 

I think his idea is reasonable because I don't know any downside of it. Or there is?

dunstonh

He is in good health. However he thinks he should access his pension as soon as possible so he can enjoy it. 

Has he modelled his money over his lifetime?

I think his idea is reasonable because I don't know any downside of it. Or there is?

Plenty of potential downsides.  However, not enough info to comment either way.

J_forest

No, he doesn't have any particular plans or model for his money. He doesn't like travel at all.

His house (approx. 200k+) is paid for, he has heat pump and solar panels. The main pension will provide £400 a month after the lump sum is taken. He would like a newer EV using the lump sum. At the moment he earns about 30k a year. When he is 65 or 66 he will have full state pension on the top of it.

Is there any potential downside if he takes the main pension when he is 60?

Many thanks.

QrizB

State pension age is currently 67 and due to rise to 68.

Full NSP plus £400 a month is about £15k pa, half as much as his current salary.

Is he going to be comfortable on that?

J_forest

QrizB said:

State pension age is currently 67 and due to rise to 68.

Full NSP plus £400 a month is about £15k pa, half as much as his current salary.

Is he going to be comfortable on that?

Yes, he thinks so. He doesn't drink or smoke, he doesn't like travelling. The only uncertainty is whether there is downside if he withdraws the main pension early.

Another person has the same pension scheme and has been withdrawing it for over 20 years. This person lives with his wife who doesn't have full station pension seem to live in a pretty decent life. They don't travel.

xylophone

This person lives with his wife who doesn't have full station pension seem to live in a pretty decent life. They don't travel.

Off the track?

Does the relative have both Defined Benefit and Defined Contribution pensions?