Options for small pension re tax

CEON44

Wife 64 currently takes a private pension. She is in receipt of sick pay also and pays small amount of tax. However she also has another small pension (£19600 value) which matures on her 65th birthday in March. How best to take this money to avoid as much tax as possible. I think an annuity isnt really viable as the monthly amount would be too small. So want else can be dine

Dazed_and_C0nfused

CEON44 said:

Wife 64 currently takes a private pension. She is in receipt of sick pay also and pays small amount of tax. However she also has another small pension (£19600 value) which matures on her 65th birthday in March. How best to take this money to avoid as much tax as possible. I think an annuity isnt really viable as the monthly amount would be too small. So want else can be dine

Pensions don't usually "mature".

Is this a defined contribution pension (like a pot of money) or a defined benefit pension (often referred to as final salary or CARE pension)?

Do you think there will ever be a tax year in the future where she has unused Personal Allowance?

CEON44

Dazed_and_C0nfused said:

CEON44 said:

Wife 64 currently takes a private pension. She is in receipt of sick pay also and pays small amount of tax. However she also has another small pension (£19600 value) which matures on her 65th birthday in March. How best to take this money to avoid as much tax as possible. I think an annuity isnt really viable as the monthly amount would be too small. So want else can be dine

Pensions don't usually "mature".

Is this a defined contribution pension (like a pot of money) or a defined benefit pension (often referred to as final salary or CARE pension)?

Do you think there will ever be a tax year in the future where she has unused Personal Allowance?

Hi. Thanks for reply. Unfortunately I cant really answer your question. The pension my wife is currently taking was a works pension. The company closed down and my wife took a more basic job in catering. Her employer said he would open a private pension where he would match her contributions. That employment lasted a few short years until my wife took ill. So it has been dormant now for about 10 years. The value is around £11000 but there is also a bonus which is added on at age 65. So in total its £19600. 

DRS1

That sounds like a with profits policy (so almost certainly a personal pension).  You need to check if she has a guaranteed annuity rate (GAR) as part of the policy.  If she has how much is it?  Does it beat current market rates for annuities?  I am not quite sure when they stopped doing GARs and it may be her pension started after they became the kiss of death for Equitable Life (2000?).

The provider should be sending her papers about taking the pension in March - if not she should ask for the retirement pack.  If there is a GAR then it will get a mention in the pack - possibly in a separate leaflet.

Even if there is no GAR the pack will set out the options she has around annuities drawdown or (heaven forbid) taking it all in one go.

CEON44

DRS1 said:

That sounds like a with profits policy (so almost certainly a personal pension).  You need to check if she has a guaranteed annuity rate (GAR) as part of the policy.  If she has how much is it?  Does it beat current market rates for annuities?  I am not quite sure when they stopped doing GARs and it may be her pension started after they became the kiss of death for Equitable Life (2000?).

The provider should be sending her papers about taking the pension in March - if not she should ask for the retirement pack.  If there is a GAR then it will get a mention in the pack - possibly in a separate leaflet.

Even if there is no GAR the pack will set out the options she has around annuities drawdown or (heaven forbid) taking it all in one go.

She did receive a pack couple of weeks ago and I didnt see any mention of a GAR. To be honest there wasnt really much info about what to do. I was thinking as she already pays a small amount of tax then no matter how she takes the money she is going to pay tax?  I was leaning towards taking it all in one lump, get the 25% tax free and then just pay the tax on the rest in one go. She doesnt really fancy getting a small annuity of probably less than £20 per week. She doesnt see any value in that

DRS1

You say she is getting sick pay so her health is not good.  Is that a factor to weigh on this decision?  Taking it all in one go may make sense if she is doesn't expect to see 70 but an annuity may be better if she will live to get a telegram from the King.

The other thing is will taking it all in one go have an impact on anything else?  I don't know how sick pay works but does other income affect it?  Or will it stop when she hits a certain age?  Is there going to be a period when she is paying less or no tax before her state pension kicks in?  Of course I am assuming the sick pay is taxable.

Or does she have savings interest and make use of the starting rate for savings?  The £5k figure for that reduces with non savings non dividend income over the personal allowance.  75% of £19600 is £14700 which on its own would wipe out £2130 of the starter rate figure never mind what her other income is.  Of course that may not be relevant - we don't have any details.

Annuities tend to pay out monthly but you can get annual payments so once a year she could get a reasonable sum - in time for a birthday or Christmas or whatever.

There is also the drawdown possibility where she perhaps takes the tax free lump sum but leaves the balance as "crystallised" funds sitting in the pension until she needs it.  It would be taxable when she takes it but she could spread it over years and only dip in when she wants to.  More flexible than an annuity.  But it may not be something her existing pension can deliver and perhaps a transfer to a more modern pension would be needed.  The pack may have something on that?

And let's not forget they tell us the personal allowance will go up one day.  I don't know how far above it she is at the moment and maybe she will get the state pension first and all the figures will change.

DRS1

Oh and you might do better on the Retirement Board.