Wife's pension found - but what to do?

jibblyjabbly

I am my wife's full time carer. We get Universal Credit and I make a few extra pounds doing this and that locally, and we get by.

Just discovered that my wife has a pension from decades ago when she worked for a big bank. We have to decide whether to take a 25% tax free cash lump of it, a yearly pension, or transfer somewhere else.

The yearly pension would be nice. It would work out about 5000 a year. My wife is 5 years from state pension age. I am about 8 years ffrom state pension age.

How will this new income affect Universal Credit? My self employed income has dwindled thanks to my own poor health and this 5k a year would be great. Will UC just treat the monthly pension income like they did my self employed income, or are there other things to consider.

Many thanks!

R

DE_612183

yes, it's just income - if your wife is not SPA then there's no need to take it now - unless you are being told these are the ONLY options....

Soontobeoap

Think carefully about deferring it as when your wife becomes state pension age, if eligible for full pension anything above that will be taxed.. Best to take it now I would think to avoid tax?

jibblyjabbly

DE_612183 said:

yes, it's just income - if your wife is not SPA then there's no need to take it now - unless you are being told these are the ONLY options....

We could actually use it now, TBH. There are 3 options. The first one is not desirable as it involves taking a bunch of it and we don't need it. The third option is to transfer the pension. We could do this but have no idea how. But, again, the 5k as a monthly income would take a ton of pressure off us.

Thanks for your answer.

warm regards

R

jibblyjabbly

Sorry, I don't think we have the option of just leaving it where it is. There were three options: 1. take lump sum now and reduced pension now, 2. take pension now, 3. transfer pension.

best wishes

R

DE_612183

Soontobeoap said:

Think carefully about deferring it as when your wife becomes state pension age of eligible for dull pension anything on top will be taxed. Best to take it now I would think to avoid tax?

Good point - I guess you have to weigh up additional tax down the road or loss of UC.

As the above states - it may be £5k now, but in 5 years time it will be £4000 once taxed...

DE_612183

jibblyjabbly said:

Sorry, I don't think we have the option of just leaving it where it is. There were three options: 1. take lump sum now and reduced pension now, 2. take pension now, 3. transfer pension.

best wishes

R

Probably by transferring the pension you can then leave it and take it at a later date, but as you say taking the £5000 a year now will impact your UC I would think...I read that it's 55% so (£5k / 12 = £416, *55p = a reduction of £228 a month ) - please take this with a pinch of salt my calculations could be wrong!

If that's the case then you lose £2736 a year, and if you leave in the pension you'll lose £1000 a year when it gets taxed...

jibblyjabbly

I think I understand it. The pension income will be unearned income which will be deducted pound for pound from UC. So it will be best to transfer the pension and wait until wife reaches pension age before taking from it.

What do you think?

warm regards

R

DE_612183

jibblyjabbly said:

I think I understand it. The pension income will be unearned income which will be deducted pound for pound from UC. So it will be best to transfer the pension and wait until wife reaches pension age before taking from it.

What do you think?

warm regards

R

I think it reduces by 55p per £1 - but I'm not 100% sure - maybe worth trying citizens advice for an exact piece of advice

sammyjammy

It sounds like a Defined benefit pension, there is no 25% tax free lump sum.  If she chooses to transfer it out advice by an IFA will be required, this will cost five figure sum and if the result is advised not to transfer then she may have trouble finding someone to take the transfer.  If you go to the pension boards and search DB transfer you can read all about it.

Spoonie_Turtle

DE_612183 said:

jibblyjabbly said:

I think I understand it. The pension income will be unearned income which will be deducted pound for pound from UC. So it will be best to transfer the pension and wait until wife reaches pension age before taking from it.

What do you think?

warm regards

R

I think it reduces by 55p per £1 - but I'm not 100% sure - maybe worth trying citizens advice for an exact piece of advice

No, pensions are 'unearned income' and deducted in full.  https://assets.publishing.service.gov.uk/media/67d98353a87d546feeda0194/admh5.pdf

OP, a tax free lump sum is a possibility, if it doesn't take your capital over £16,000. 
(If it takes your capital over £6,000 then there will be a deduction of £4.35 for every £250 above £6,000.)  Edit: that's if it's an option for that specific pension.  I was speaking from a UC point of view, I know nothing about pensions themselves.