Turning £1m pension into cash

Bolt1234

Hello,  please be gentle with this one.  My husband has a life limiting illness but has a pension pot worth in excess of £1m.  He has already taken the 25% tax free element and not putting anything further into it.  At present he doesn’t have an income and is self employed.  His industry has been hard hit. It might be that he doesn’t work again.  We are comfortable and I have recently come into a significant inheritance.  I am still working.

His pension is written into trust to me as his wife.  We both have wills.

As he doesn’t have an income he is going to draw down £50k per year in monthly instalments.  

Of course we realise he will pay tax at 20% and has already spoken to his accountant to ensure that he is given the correct tax code. 

With all the turmoil should he consider turning his pension into cash and then drawing down the £50k every year.  Pension has done well over the last few years but that is likely to not continue I suspect.

Grumpy_chap

Bolt1234 said:

Hello,  please be gentle with this one.  My husband has a life limiting illness but has a pension pot worth in excess of £1m.  He has already taken the 25% tax free element and not putting anything further into it.  At present he doesn’t have an income and is self employed.  His industry has been hard hit. It might be that he doesn’t work again.  We are comfortable and I have recently come into a significant inheritance.  I am still working.

His pension is written into trust to me as his wife.  We both have wills.

As he doesn’t have an income he is going to draw down £50k per year in monthly instalments.  

Of course we realise he will pay tax at 20% and has already spoken to his accountant to ensure that he is given the correct tax code. 

With all the turmoil should he consider turning his pension into cash and then drawing down the £50k every year.  Pension has done well over the last few years but that is likely to not continue I suspect.

Turning the pension fund into cash now will crystalise any recent losses and not allow the remaining balance beyond the planned withdrawals for this year to recover any value.

Bolt1234

So are you saying it’s too late?  My husband’s illness will probably result in him passing in 2-3 years from now.  

squirrelpie

Bolt1234 said:

With all the turmoil should he consider turning his pension into cash and then drawing down the £50k every year.  Pension has done well over the last few years but that is likely to not continue I suspect.

What's he going to do with the £50k each year? Are you going to spend it? If not, what's the goal of withdrawing it?

As @Grumpy_chap says, crystallising losses after they've occurred is not generally a good plan, unless you have some reason to think they will continue to get worse.

Aretnap

Bolt1234 said:

So are you saying it’s too late?  My husband’s illness will probably result in him passing in 2-3 years from now.  

I'm very sorry to hear that. 

Talking about money at a time like this always feels slightly wrong, but it sounds like you still need to think about the long term. With a million pounds in his pension and presumably a few hundred thousand pounds outside it from the tax free sum, your husband has more than enough money to last the rest of his life, pretty much regardless of what the stock market does next.

You will presumably inherit most of the money when he passes - and if you're in good health and still working then presumably you are of an age where you will still need a plan for the money which will last for several decades. On that timescale the current market turmoil is just a blip and the best place for the money is still the stock market. 

If your husband has been investing long enough to have a million pounds in his pension then presumably he has been investing through the dot com crash, the great financial crisis, COVID etc etc - this is just one of many market falls he will have experienced, and not even  the biggest. Fundamentally it changes nothing - in the long term stocks provide a better return than cash and are where money should be if your plans for it extend over many years rather than just a few.

Marcon

Bolt1234 said:

So are you saying it’s too late?  My husband’s illness will probably result in him passing in 2-3 years from now.  

It's not a case of 'it's too late' but rather a case of 'it doesn't seem necessary/look like a good idea'.

If your husband withdraws all his pension now, he'll get a whopping tax bill at the point of withdrawal - it will tip him straight into higher rate tax.

It's important to ensure he has an up to date expression of wish form confirming you are his preferred nominee to inherit when he dies. If the pair of you have enough cash to live on, then it would seem to make more sense to leave his pension fund where it is and (forgive me) when the time comes, you will inherit the lot tax free if he dies before the age of 75, or if he is over 75, then anything you withdraw from the fund will be taxed at your marginal rate. 

Bolt1234 said:

Of course we realise he will pay tax at 20% and has already spoken to his accountant to ensure that he is given the correct tax code. 

HMRC will be the ones who provide the tax code direct to the pension provider. His accountant won't have any say in the matter.

Bolt1234 said:

With all the turmoil should he consider turning his pension into cash and then drawing down the £50k every year.  Pension has done well over the last few years but that is likely to not continue I suspect.

Rather than turning his pension into cash (which I've taken to mean 'withdraw'), he could simply switch the funds in which his pension is currently invested. The provider's website, or a call to the provider, will enable him to check what is available. 

Bolt1234

Thank you for your comments.  It’s really important for husband to have his own money to do with what he will. Help funding holidays and other fun things rather than me pay for everything.

He has worked bloody hard for it and although I have a fair amount I could give him it’s not the same.  We are mortgage free and have a house worth a fair amount.  I don’t plan to move when the time comes although it is rather large it’s easy enough to look after. 

Going forward we plan to give both grown up sons large house deposits and to pay off their student debt.  Both children are full time working with useful degrees - think Economics and Science degree.  

Overall our estate with the pension is worth approx £3.3 m if that helps with any advice.  Yes, we have a financial advisor but the pension thing I would like to gain further knowledge on before we take things further.

As mentioned before the pension will come to me tax free.  I can probably see out the ebbs and flows of the stock market so maybe we leave as and bus and takes the £50k per year and then sees how it goes. 

Bolt1234

Sorry, I wasnt clear I suspect.  I was looking at turning the whole pot into cash and then taking out £50k per year to protect the pot from tanking and losing huge amounts.  He wouldn’t take out ALL £1m.

He has already asked the pension provider to start paying him £4k per month.  HMRC have immediately put him on 40% tax rate but he doesn’t have any income so that is where the accountant comes in to tell HMRC that so the tax code can be adjusted

Bolt1234

Yes - expression of wish all confirmed and he will pass before 75

Dazed_and_C0nfused

Bolt1234 said:

Sorry, I wasnt clear I suspect.  I was looking at turning the whole pot into cash and then taking out £50k per year to protect the pot from tanking and losing huge amounts.  He wouldn’t take out ALL £1m.

He has already asked the pension provider to start paying him £4k per month.  HMRC have immediately put him on 40% tax rate but he doesn’t have any income so that is where the accountant comes in to tell HMRC that so the tax code can be adjusted

Allocating a D0 tax code to someone who is self employed sounds very unusual.

Is he really self employed?

Bolt1234

Sorry. He is a Director of a limited company.