Cashing in 2 small pensions - please help !

MallyGirl

Dazed_and_C0nfused said:

MallyGirl said:

That isn't how income tax works. If you only worked for 1 month and earned £12570 that would be all your personal allowance used

That isn't how it works in reality though as the employer would only have allowed 1/12th of the tax code code allowances when calculating the tax due for month 1.

True - but this was a simplistic illustration about why having only worked 6 months of the year wouldn't mean you had 6/12ths of the £12570 allowance left which is what OP thought would be the case

badmemory

Are you saying that the OP wouldn't get a tax refund if they have no other taxable income for the rest of the year, because that is how it reads & I am sure it is not the case.

Sarahspangles

badmemory said:

Are you saying that the OP wouldn't get a tax refund if they have no other taxable income for the rest of the year, because that is how it reads & I am sure it is not the case.

The OP is likely - as she says herself - to have half of her tax free allowance available because she will at this point have been taxed as if she would be receiving a salary every month for the full year. She could declare she’s not working for the rest of the year and get the overpaid tax back.

Dazed_and_C0nfused

badmemory said:

Are you saying that the OP wouldn't get a tax refund if they have no other taxable income for the rest of the year, because that is how it reads & I am sure it is not the case.

You are correct, depending on how you view these things they would either have unused tax code allowances or, if you vie it differently and have no tax code allowances left, have overpaid tax on the pay for first part of the tax year.

DeeMM

MallyGirl said:

Dazed_and_C0nfused said:

MallyGirl said:

That isn't how income tax works. If you only worked for 1 month and earned £12570 that would be all your personal allowance used

That isn't how it works in reality though as the employer would only have allowed 1/12th of the tax code code allowances when calculating the tax due for month 1.

True - but this was a simplistic illustration about why having only worked 6 months of the year wouldn't mean you had 6/12ths of the £12570 allowance left which is what OP thought would be the case

Sorry but I do have 6/12 of the £12570 tax free allowance left.  I've only used 6/12 of it this tax year - one 12th allocated, under the PAYE system, for each of the months April,May, June, July, August, September. 
The Civil Service pension I mentioned in my original post is from a period of  around 15 years working as a Tax Officer in what was then known as the Inland Revenue.  I dealt with all aspects of PAYE on a daily basis and the basics of it don't seem to have changed much from back then, so hopefully I know 'how income tax works'. With regard to PAYE anyhow   

DeeMM

FIREDreamer said:

DeeMM said:

Dazed_and_C0nfused said:

So I won't have any regular income until next April when I will claim a Civil Service Pension which I could have had from 60 but will take from 6.4.2025 instead

Why didn't you take that at 60?

What do you think happens to the money for the ~6 years you haven't taken it?

Are the two small pensions definitely defined contribution pensions and not defined benefit pensions?

I didn't take it at 60 because I was working and didn't need it.

Sorry but I'm not sure what you mean by the 'what do you think happens etc' part of your reply?... When I enquired with the CSP people they told me that when I do claim it the back years will be paid to me too. It's not much so that sounded OK to me.  I guess it will be taxed at source but it's not enough to take me into the higher rate tax bracket.  

Regarding the two small pensions I had no idea what type they were or what  those 2 types of pensions actually are but I have now read up on them and have also phoned both Prudential and Aegon who have confirmed that yes, they are both defined contribution pensions. 
 
As you can probably tell I really have no idea about pensions and the more I read and the more I talk to the providers the more confused I become.  It truly is a minefield to me. 

I think (based on other comments here) that you have lost the past payments and there is no late retirement factor applied for starting the pension late either.

Thanks ...  I think I will get the arrears from 60 when I could have taken it, based on what I've been told by Civil Service Pensions  and also read on the website for this old Classic pension but you're right, there's no late retirement factor involved.  I never contributed to it anyway so it's all a bonus !  

DeeMM

Marcon said:

DeeMM said:

Marcon said:

DeeMM said:

Hello Forumites 

I've searched as many forum posts as I can and will be honest I'm more confused than ever now.  Pensions just make me stressed - they really do. 

Anyway, I'm 65 and due to retire next April but left my part time job recently as I just couldn't stand any more!  So I won't have any regular income until next April when I will claim a Civil Service Pension which I could have had from 60 but will take from 6.4.2025 instead and I will also receive full new state pension [once I've paid over the money for missing years working overseas and which HMRC have agreed I can pay voluntary Class 2 NIC for]. Those 2 pensions will be fine for my income in retirement. Currently I'm OK too luckily - as I have money to live off and further savings if I need them. 

I have 2 other small pensions though worth 6.5K and 10.5K.  One from my most recent job of a few years and one from early 90's before I went overseas. I'm thinking to just cash those in and use the proceeds to pay the Class 2 NICs and use the rest as the salary I won't be getting now that I've finished work.  Does that make sense to cash them in?  I don't understand  all the other options available really and even though all the advice is 'speak to a financial adviser' in reality I don't think they're interested in giving advice on pension pots so small.  I just need confirmation really that my idea of cashing them in would be the best thing to do.  I think it is ........ based on all the other factors.  I'd get some of the tax back too as I only worked 6 months of the tax year so have 6 months of unused tax allowance.  Can sort that out later anyway.
 
Hope the above makes sense, isn't too long and that someone can please give their thoughts on it all. 

Thanks very much 

You say you'll take your Civil Service pension from 6.4.2025. Exactly which scheme were you in, and why have you delayed taking it?

Marcon said:

DeeMM said:

Hello Forumites 

I've searched as many forum posts as I can and will be honest I'm more confused than ever now.  Pensions just make me stressed - they really do. 

Anyway, I'm 65 and due to retire next April but left my part time job recently as I just couldn't stand any more!  So I won't have any regular income until next April when I will claim a Civil Service Pension which I could have had from 60 but will take from 6.4.2025 instead and I will also receive full new state pension [once I've paid over the money for missing years working overseas and which HMRC have agreed I can pay voluntary Class 2 NIC for]. Those 2 pensions will be fine for my income in retirement. Currently I'm OK too luckily - as I have money to live off and further savings if I need them. 

I have 2 other small pensions though worth 6.5K and 10.5K.  One from my most recent job of a few years and one from early 90's before I went overseas. I'm thinking to just cash those in and use the proceeds to pay the Class 2 NICs and use the rest as the salary I won't be getting now that I've finished work.  Does that make sense to cash them in?  I don't understand  all the other options available really and even though all the advice is 'speak to a financial adviser' in reality I don't think they're interested in giving advice on pension pots so small.  I just need confirmation really that my idea of cashing them in would be the best thing to do.  I think it is ........ based on all the other factors.  I'd get some of the tax back too as I only worked 6 months of the tax year so have 6 months of unused tax allowance.  Can sort that out later anyway.
 
Hope the above makes sense, isn't too long and that someone can please give their thoughts on it all. 

Thanks very much 

You say you'll take your Civil Service pension from 6.4.2025. Exactly which scheme were you in, and why have you delayed taking it?

Marcon said:

DeeMM said:

Hello Forumites 

I've searched as many forum posts as I can and will be honest I'm more confused than ever now.  Pensions just make me stressed - they really do. 

Anyway, I'm 65 and due to retire next April but left my part time job recently as I just couldn't stand any more!  So I won't have any regular income until next April when I will claim a Civil Service Pension which I could have had from 60 but will take from 6.4.2025 instead and I will also receive full new state pension [once I've paid over the money for missing years working overseas and which HMRC have agreed I can pay voluntary Class 2 NIC for]. Those 2 pensions will be fine for my income in retirement. Currently I'm OK too luckily - as I have money to live off and further savings if I need them. 

I have 2 other small pensions though worth 6.5K and 10.5K.  One from my most recent job of a few years and one from early 90's before I went overseas. I'm thinking to just cash those in and use the proceeds to pay the Class 2 NICs and use the rest as the salary I won't be getting now that I've finished work.  Does that make sense to cash them in?  I don't understand  all the other options available really and even though all the advice is 'speak to a financial adviser' in reality I don't think they're interested in giving advice on pension pots so small.  I just need confirmation really that my idea of cashing them in would be the best thing to do.  I think it is ........ based on all the other factors.  I'd get some of the tax back too as I only worked 6 months of the tax year so have 6 months of unused tax allowance.  Can sort that out later anyway.
 
Hope the above makes sense, isn't too long and that someone can please give their thoughts on it all. 

Thanks very much 

You say you'll take your Civil Service pension from 6.4.2025. Exactly which scheme were you in, and why have you delayed taking it?

I was in the Civil Service Classic [non contributory] final salary scheme - it was years and years ago that I worked in the civ so it's a really old type pension. 
I've delayed taking  it because I was working and didn't need it.  I thought I'd just let it go and have the arrears paid to me when I do finally take it.  Possibly the wrong thing to do I really don't know.  It just illustrates my ignorance about pensions. They really stress me out and I find them a minefield.  Not the money part per se - lol -  just the decision making and understanding all the different options. 

Thank you. The reason for asking is that Classic has no 'late retirement' factor - in other words, if you don't take it at 60, you don't get any 'extra' for the delay in starting to draw it. It will be backdated to 60 when you do start to take it, and uplifted for inflation, but not with any increase because you've delayed taking it.

On the tax side, you can either have the whole lot taxed at the time you receive it, or you can choose to ask HMRC to tax it as if you had started to draw it at the time you became entitled to the pension (ie age 60, and taxed on a year by year basis for the amount you could have drawn in that year). You might want to have a think about how that will impact your tax position now.

That's all very interesting and useful information - thank you. I will definitely have a think about it and the possibility of having it taxed for the year[s] of entitlement rather than for the year that it's paid to me.  I didn't realise that was an option.  

molerat

Once you receive the back payment you will have to get a breakdown from the provider of how those payments are attributed and present that to HMRC.  The pension provider will not do it and HMRC will not seek it out, it will be down to you to do all the legwork.

xylophone

Presumably you have your P45.

Had you considered combining the two small pensions into one SIPP?

Example

https://www.hl.co.uk/partners/search/self-invested-personal-pension?partners=1&theSource=PCHLS&Override=1&adg=G+HLBS+HLS&gad_source=1&gclid=Cj0KCQjwj4K5BhDYARIsAD1Ly2pQU2jBU98IWyftKc6s3bELm0dvA5P3B0PMfgvKSOEDGyCQn_3apUIaAjtqEALw_wcB

Getting the tax right on money withdrawn from the SIPP might be easier if you give the P45 to the SIPP provider before withdrawing.

You would be able to take your 25% tax free Pension Commencement Lump Sum  (around £4000) while the balance would be taxed as income in the year of receipt.

Qyburn

Have you done a straight comparison, how much per year would these two small pensions give you? And how much extra State Pension would you get by cashing in the pensions and buying extra years?