Cashing in Pension at 55

CharlieBluebird

Hi,
I am 55 this August, I have an old pension of around 23K, can I cash all this in once I reach 55? I am currently still working with a salary of 45K

LHW99

Do you have other pensions?

If you cash it all in:

1) £5750 is tax free, the remaining £17250 get added to your income in the year making it £72250, so into the 40% tax bracket.

2) You will trigger the MPAA and be restricted to a total of £10k pa into the pension from then on (I think this includes both employee and employer contribution)

penners324

What sort of pension?

You may well trigger the MPAA if you do. This will restrict your future pension contributions to £10k a year.

Plus you'll pay tax on the withdrawal.

Wouldn't transferring it into your current workplace (or elsewhere) pension be a better option

CharlieBluebird

Yes I do have a workplace pension as well, my employee + employer payments into that are less than 10k a year anyway (about 4k per year at the moment). So I could cash in my old one if im willing to accept the 40% tax on 75% of it, is that correct?

Albermarle

CharlieBluebird said:

Yes I do have a workplace pension as well, my employee + employer payments into that are less than 10k a year anyway (about 4k per year at the moment). So I could cash in my old one if im willing to accept the 40% tax on 75% of it, is that correct?

It is correct, but from a financial point of view and in view of the fact that £4K a year going into your current pension is rather low, it would probably be better to transfer it into your workplace pension to boost it up.

Brie

CharlieBluebird said:

Yes I do have a workplace pension as well, my employee + employer payments into that are less than 10k a year anyway (about 4k per year at the moment). So I could cash in my old one if im willing to accept the 40% tax on 75% of it, is that correct?

Not if it's a DB pension.  

penners324

CharlieBluebird said:

Yes I do have a workplace pension as well, my employee + employer payments into that are less than 10k a year anyway (about 4k per year at the moment). So I could cash in my old one if im willing to accept the 40% tax on 75% of it, is that correct?

Will you only want £4k a year going in as you approach retirement?

Marcon

CharlieBluebird said:

Yes I do have a workplace pension as well, my employee + employer payments into that are less than 10k a year anyway (about 4k per year at the moment). So I could cash in my old one if im willing to accept the 40% tax on 75% of it, is that correct?

If you really need the cash, then taking the 25% tax free + an amount which would take you up to just below the 40% tax threshold in this tax year, with the balance being taken in the next tax year, would go a long way towards cutting the amount on which you need to pay 40% tax.

If the 'old' pension is a very old contract it may not support that approach, but transferring it to a more modern contract should do the trick - you won't need financial advice and you can do it yourself.

Dazed_and_C0nfused

CharlieBluebird said:

Yes I do have a workplace pension as well, my employee + employer payments into that are less than 10k a year anyway (about 4k per year at the moment). So I could cash in my old one if im willing to accept the 40% tax on 75% of it, is that correct?

Not unless you are Scottish resident for tax purposes no.

Based on what you originally said you will have some basic rate band left so will pay a mix of 20% and 40% tax on the £17,250 that is taxable.

Your current pension contributions are likely to either increase the basic rate band available or reduce the £45k salary to a lower taxable amount so it's possible a decent chunk of the £17,250 will only end up being liable to tax at 20%.

I am currently still working with a salary of 45K

Pat38493

How desperately do you need the money?

How much do you think you will need when you eventually retire?

How much is already in your workplace pension and/or any other pensions that you have?  If you are only putting in £4K a year it's probably not much in the context of having to fund a full retirement.

When are you planning to retire?

Cashing a pension in like that whilst still working could be very tax inefficient, especially if you might get the chance to take it out over several years with hardly paying any tax later.

Beyond that - as Marcon said if you really need the money now or soon you could save some tax by spreading the withdrawal over 2 or more years.

Further - as others have said, by doing this you will limit the total amount you can put into a pension (including employer contributions) to £10K, and this would include for example if you were made redundant and you want to put redundancy pay into the pension.

Do you have a full state pension already (have you checked this)?

Will your future self regret raiding your limited pension assets for short term goals?  Without knowing what you plan to spend the money on it's not clear and only you can decide.