Taking cash from private pension (contracted out SERPS)

asingledad

I am thinking of taking cash out of a smallish private pension from a job I did years ago when I turn 55 to pay off debt.

It was contracted out and about a third of the money shows as "protected rights".

I am not planning to retire for a good while (not before my 70s) so will be able to save money again between now and then - probably from next year or so.

How much can I take out, and will it affect my ability to contribute to the pension again?

xylophone

Protected rights are no more - you have a standard DC pension.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm17056#:~:text=Protected rights were abolished from,of the Pensions Act 2008.

You should seek a guidance interview with Pension Wise before taking any action to access the pension.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise/book-a-free-pension-wise-appointment

If you are currently contributing to a Defined Contribution Pension, you should consider whether you would be affected ty the

Money Purchase Annual  Allowance.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

Marcon

asingledad said:

I am thinking of taking cash out of a smallish private pension from a job I did years ago when I turn 55 to pay off debt.

It was contracted out and about a third of the money shows as "protected rights".

I am not planning to retire for a good while (not before my 70s) so will be able to save money again between now and then - probably from next year or so.

How much can I take out, and will it affect my ability to contribute to the pension again?

How much cash is in the pot?

xylophone

How much cash is in the pot?

Small pots covered in link above.

There are special rules if you want to cash in a number of small pension pots valued at less than £10,000, so it’s important to check with your provider that it will be treated as taken under the small pot lump sum rules. Otherwise, there’s a risk the MPAA will be triggered. 

Brie

xylophone said:

How much cash is in the pot?

Small pots covered in link above.

There are special rules if you want to cash in a number of small pension pots valued at less than £10,000, so it’s important to check with your provider that it will be treated as taken under the small pot lump sum rules. Otherwise, there’s a risk the MPAA will be triggered. 

But it may not be small pots.  the OP said "smallish".  That could be £2k or £40k depending on what one considers smallish.  

Marcon

Brie said:

xylophone said:

How much cash is in the pot?

Small pots covered in link above.

There are special rules if you want to cash in a number of small pension pots valued at less than £10,000, so it’s important to check with your provider that it will be treated as taken under the small pot lump sum rules. Otherwise, there’s a risk the MPAA will be triggered. 

But it may not be small pots.  the OP said "smallish".  That could be £2k or £40k depending on what one considers smallish.  

Quite. Many people using this site need to have some basic practical help, presented in the shortest and simplest fashion possible. Wading through endless links on such a complex subject may not be for them - they don't want to read HMRC's manual!

xylophone

But it may not be small pots. 

I didn't say they were -  I was simply drawing attention to that particular section of the Moneyhelper site (which is specifically aimed 

at the layman/woman/non-binary even)!

You will also note that I drew attention to seeking a Pension Wise interview for guidance before taking steps to access the 

pension.

And with regard to HMRC manual -  below seems quite clear 

Protected rights were derived from a pension scheme which had been contracted out of the second state pension (S2P) (or, previously, the state earnings related pension scheme (SERPS)). Contracting out means that the member gives up state benefits under S2P or SERPS, in exchange for payments by the Government into the contracted-out scheme. These payments constituted the protected rights fund which was ring-fenced and could only be paid out in certain prescribed ways.

Protected rights were abolished from 6 April 2012 by Section 106 of the Pensions Act 2008.

Some more information here (from WHICH and very accessible) that the OP might find useful before his guidance interview or 

taking professional (fee based) advice if required.

https://www.which.co.uk/money/pensions-and-retirement/state-pension/what-was-contracting-out-ascMg4t2I7Hk

asingledad

I am happy to wade through manuals if need be, but simpler is better!

There pot is about £30k.

"Protected rights are no more - you have a standard DC pension."

Thank you. I was confused because my provider is still showing a number for protected rights. It looks like I can just ignore that.

I want to take some of that money out, but not all. What I want to know are what the consequences will be if I do. In particular could I add money to other pensions, start a new pension scheme? I know there are some limits future contributions in some circumstances but am not clear what makes them kick in.

dunstonh

Thank you. I was confused because my provider is still showing a number for protected rights. It looks like I can just ignore that.

With old fashioned plans running on old fashioned technology, these plans were often hard coded and not easily changed.    They are effectively in run down.  So, there is little point paying millions of pounds to alter their systems o legacy plans.  So, instead, they just reclassify them as former protected rights or words similar to that.

I want to take some of that money out, but not all. What I want to know are what the consequences will be if I do. In particular could I add money to other pensions, start a new pension scheme?

If you access only the 25% tax free cash, then there is no impact on other pensions or how much you can contribute.  If you access any of the 75% taxable element, then restrictions begin to apply and you need to notify your other pension providers and any future ones that you have triggered the MPAA.

You may well find that your current plan doesn't support income drawdown.  Legacy plans often do not (other than UFPLS or small pots rule).  If so, you will need to transfer it to a modern plan to allow it.

xylophone

I would still suggest taking that Pension Wise interview before attempting to access the pension because the provider is likely to ask

you if you have done so.


As poster above has explained, your current provider may not offer flexible access on this old plan.

See here

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

You might find the section on explore your pension options on line helpful.

If you need to transfer out to a modern plan so as to obtain flexible access, you have plenty of options as to provider but one of the DIY

platforms like Hargreaves Lansdown  might suit.

https://www.hl.co.uk/pensions/sipp

Transfer your old pensions

Transferring pensions from another provider, including old workplace pensions, can help you to take control of your retirement savings.

The fastest way to transfer is online.

MORE ON TRANSFERRING