Dormant pension - should I take money out

tir21

I've got a pension I haven't being paying in to for 30 odd years. Now sitting at £38,400. I put about 5k in so I think bonuses have taken it up to that amount. It's going up about £800 per year. Should I take that money out and put it in a bank account now I'm 55?

eskbanker

tir21 said:

I've got a pension I haven't being paying in to for 30 odd years. Now sitting at £38,400. I put about 5k in so I think bonuses have taken it up to that amount. It's going up about £800 per year. Should I take that money out and put it in a bank account now I'm 55?

Why would you?

Impossible to give any meaningful guidance without more detail about your financial circumstances but in general it's sensible to leave money in a pension until it's needed, given the tax advantages....

Mark_d

If you've had the pension in excess of 30 years, is it a defined benefit arrangement?  Suppose it is a defined contribution arrangement, what do you hope to gain by crystallising funds now and earning 4% interest in a bank account?

tir21

But I could also get tax advantages if the money was in an ISA

dunstonh

tir21 said:

But I could also get tax advantages if the money was in an ISA

But its already in a tax advantageous wrapper.  

tir21

Mark_d said:

If you've had the pension in excess of 30 years, is it a defined benefit arrangement?  Suppose it is a defined contribution arrangement, what do you hope to gain by crystallising funds now and earning 4% interest in a bank account?

More than £800 a year increase

Linton

tir21 said:

But I could also get tax advantages if the money was in an ISA

Yes, but you would lose money to tax when you take it out of the pension. 

By keeping the money in the pension and ensuring it is invested in suitable funds you should over time earn far more than available from a cash ISA.  I suggest that if the pension is Defined Contribution rather than Defined Benefit (eg final salary)   you check up what the pension is invested in and if something better is not available (quite possible with a 30 year old pension) you can transfer it to a modern pension elsewhere.

It pay be possible/worthwhile to transfer the pension to your current employer's pension if you have one.

poseidon1

tir21 said:

But I could also get tax advantages if the money was in an ISA

If its DC scheme  generally only first 25% is tax free when withdrawn, with the remaining 75% withdrawal subject to income tax at your highest marginal tax rate.

If you are still working, 75% of your withdrawal could be taxed as high as 40%, therefore negating the benefit of your plan to use the net proceeds to fund ISAs.

You are advised to familiarise yourself with the policy terms and conditions, especially with regard to possibility of the policy having a valuable guaranteed annuity rate, way in excess of current market rates.

£38k is a not an inconsiderable sum, so take time to explore all tax implications, and potential loss of benefits the policy might currently provide, and remember it continues to benefit from tax free growth until you really need access.

Finally if unimpressed with current rate of growth, you could potentially transfer the policy funds to your only self managed SIPP, where a money management unit trust fund could generate 4% +.

However also check whether the policy is a whole life with profit arrangement, where a 'terminal bonus ' may be available.

Plenty of homework for you to be getting on with before taking hasty action.

Mark_d

tir21 said:

But I could also get tax advantages if the money was in an ISA

I don't think an ISA has any more tax advantages than a pension.  Both allow the funds to grow tax free.

Mark_d

tir21 said:

Mark_d said:

If you've had the pension in excess of 30 years, is it a defined benefit arrangement?  Suppose it is a defined contribution arrangement, what do you hope to gain by crystallising funds now and earning 4% interest in a bank account?

More than £800 a year increase

Pensions are typically invested in things that give a higher average return than cash.  Whilst cash might given a higher return in some years, over the next 10 years other investments will likely yield more.

tir21

I'm thinking I will want the money at some stage so isn't it better to pay the tax on 75% of the amount rather than later when it will be more?