Cashing in 2 small pensions - please help !

Dazed_and_C0nfused

DeeMM said:

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.  

There is some information you might find useful here.

But if you have been earning above the Personal Allowance in the previous years and the lump sum paid in the current tax year won't make you a higher rate payer then there may well not be any benefit in doing this.

Remember that although the income is taxed in the previous tax years the tax deducted isn't relevant to those years so you can end up owing tax for those previous years but with an overpayment in the current year (where credit for all of the tax is given) to offset some or all of the underpayments.

Triumph13

You might want to think about a rather different solution.  Open a SIPP.  Take the CS pension immediately and use some of the arrears to make a pension contribution equal to the full amount of your PT earnings for the year - eg if you earned £10k gross then contribute £8k to the SIPP and it gets grossed up to the £10k. That avoids any tax issues from having the arrears in a year when you had PT earnings possibly pushing you into HRT.

Transfer your old pensions into the SIPP too.  You can then pull your SIPP back out from next tax year at your leisure.

DeeMM

molerat said:

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.

Noted.  Thanks.  I've actually worked out that it wouldn't be worth my while to do as there wouldn't be any difference to the overall tax position.  If it took me into the higher rate bracket next year when I get the arrears then I'd think about it but that's unlikely [unless today's budget changes anything in that respect of course ...... probably not]

DeeMM

Qyburn said:

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?

Good point. Thanks.  Have just checked that out and the extra state pension per year once I've paid the contributions for the missing years definitely exceeds the amounts the two small pensions would pay me annually. 

DeeMM

Triumph13 said:

You might want to think about a rather different solution.  Open a SIPP.  Take the CS pension immediately and use some of the arrears to make a pension contribution equal to the full amount of your PT earnings for the year - eg if you earned £10k gross then contribute £8k to the SIPP and it gets grossed up to the £10k. That avoids any tax issues from having the arrears in a year when you had PT earnings possibly pushing you into HRT.

Transfer your old pensions into the SIPP too.  You can then pull your SIPP back out from next tax year at your leisure.

Thank you. That is a rather different solution but one that may be worth considering.  Thanks for the link too.  Will definitely look into it as a possibility.  

badmemory

I would definitely make sure that your state pension is as high as possible.  If you have a pension that meant you were contributing the smaller amount so that could significantly benefit you.  It is possible though that the years you have already paid since 2016 will have solved that.  Is it the future pension service needed here?  I am sure someone will be along to put me right.

DeeMM

badmemory said:

I would definitely make sure that your state pension is as high as possible.  If you have a pension that meant you were contributing the smaller amount so that could significantly benefit you.  It is possible though that the years you have already paid since 2016 will have solved that.  Is it the future pension service needed here?  I am sure someone will be along to put me right.

Yes, thanks. That was something I definitely looked into. I was in touch with the Future Pension Centre, on their advice made an application [in January 2023] to pay voluntary contributions for my years working overseas.  HMRC confirmed [in December 2023] that my claim had been accepted.  So, if I pay 10 years of voluntary contributions then that, together with the years of NI I've paid since returning to the UK means that I'll qualify for full state pension.  Phew.