Turning £1m pension into cash

phlebas192

Bolt1234 said:

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

So sorry for you both. In that scenario, it does make sense from a purely financial point of view to keep the money in his pension since you will inherit it free of tax. But if it makes him feel better to be 'paying his way' now then I can understand that and in the overall scheme of things paying ~£7.5k per year in income tax is perhaps a price worth paying.

Personally, I would not be thinking of converting his whole pension to cash. You will be presumably be using it as a source of income to fund your own later years and cash is unlikely to offer a good return over the likely timespan. But it is certainly worth considering moving, say, £200k into cash. That way he doesn't need to worry about the admin side of things and can concentrate on living, safe in the knowledge that the pension payments will keep coming in without requiring further intervention. In the happy scenario that he exceeds his prognosis then a further amount can be moved to cash later on.

Bolt1234

Thank you.  I have my own pension of £26k per year from a previous role and am part time working bringing in £33k.  Been in role for 5 years and assuming health is good then I see myself working for another 3-4 years.  Full State pension will kick in next year but am thinking of deferring it.  

badmemory

I am hoping that your IFA will be arranging an initial small withdrawal from his pension which will trigger a tax code from HMRC which will avoid the problem so many people seem to have.  They withdraw all say £50k at one go & that means the systems assume that that will be the monthly income so the tax is horrendous & then you have to wait for a refund.

Keep_pedalling

Bolt1234 said:

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. 

It would be better for any large gifts to come solely from you, as you have the better chance of surviving 7 years from the date of gift.

Marcon

badmemory said:

I am hoping that your IFA will be arranging an initial small withdrawal from his pension which will trigger a tax code from HMRC which will avoid the problem so many people seem to have.  They withdraw all say £50k at one go & that means the systems assume that that will be the monthly income so the tax is horrendous & then you have to wait for a refund.

It shouldn't be a big deal. The mega tax bills are usually generated where someone takes a one-off large amount from their pension, rather than a regular monthly payment of the same amount - which is what OP says is planned here.

p00hsticks

I'm not sure if my recollection is correct and if it is still true, but when my brother was terminally ill, I believe he was told by his financial adviser that if he could get medical evidence to show he had less than a year to live he would be able to access his entire DC pension tax free. (Unfortunately he died before being able to do anything to progress it). 

SVaz

I think with that amount, a few thousand spent now on an independent advisor before you do anything other than sell the first year or two’s income amount is a sensible thing to do. 

That advisor can also help you re: IHT on your estate when the time comes - to mitigate the double taxation that will come for your children inheriting your inherited pension if you were to die after 2027.  

Dazed_and_C0nfused

p00hsticks said:

I'm not sure if my recollection is correct and if it is still true, but when my brother was terminally ill, I believe he was told by his financial adviser that if he could get medical evidence to show he had less than a year to live he would be able to access his entire DC pension tax free. (Unfortunately he died before being able to do anything to progress it). 

This might be something the op can take a look at,

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063400

cfw1994

Bolt1234 said:

Thank you.  I have my own pension of £26k per year from a previous role and am part time working bringing in £33k.  Been in role for 5 years and assuming health is good then I see myself working for another 3-4 years.  Full State pension will kick in next year but am thinking of deferring it.  

Not sure of your ages, but would it make sense for you to stop work and spent the years you have together?

You can probably change his pension so the money is in “money market funds”, but it makes no sense to me to do that.  As others have said, if he passes before 75 you can get the pension taxfree, so likely best leave it invested: the current turmoil will pass.

Sorry for your situation. All the best.

LHW99

So sorry for what you and your OH are dealing with. Another aspect that is worth considering is setting up PoA's for him (and ideally for both of you) so that you are free to act on his behalf financially if he doesn't feel well enough to do so at any time, and also have his medical wishes put down in a legal form.