Dormant pension - should I take money out

Marcon

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?

Can you change the investments in which the scheme is held?

Are you sure you can take out all the money? If it's a 30 year old pension and it's a defined contribution scheme, then you may find your only choice is to take tax free cash and the rest as an annuity. 

To access all of it, you might need to transfer to a more modern contract - and if the scheme has any 'safeguarded rights' (basically some sort of promise such as a Guaranteed Annuity Rate), you'd need to pay for regulated advice because the value is over £30K. 

If it's a defined benefit scheme, you would definitely need to transfer before you could access the whole lot in one go - and think £5K+ for the necessary advice.

Marcon

tir21 said:

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?

You'd be paying nearly £6K in tax (more if you are pushed into a higher rate tax bracket by taking the lot in one go), so your capital would be significantly diminished if you take it now.  As someone has asked above, is there a terminal bonus you would lose if you cash in or transfer?

molerat

Plus if you take 1p of taxable cash from a DC pension, except in limited circumstances, you limit your future contributions to any other DC pensions to £10K pa forever.

LHW99

May be worth talking to moneyhelper / Pensionwise?

https://www.moneyhelper.org.uk/en/pensions-and-retirement

tir21

Isn't it better to take the hit on the tax now and build it up again then a hit on the tax when I'm 67?

leosayer

It really depends on how much other income you do and will receive.

Taking it in one lump now means you may possibly pay 40% tax on some or all of it.

Taking it over a few years when you have no other earnings may means you can draw it all without paying any tax at all.

Marcon

tir21 said:

Isn't it better to take the hit on the tax now and build it up again then a hit on the tax when I'm 67?

If you could answer the questions asked above, you'd get better informed responses because those replying would have better information on which to give those answers.

Aretnap

tir21 said:

Isn't it better to take the hit on the tax now and build it up again then a hit on the tax when I'm 67?

Most people earn less when they are 67 than when they are 55 which means that they pay a lower rate of tax on pension withdrawals. 

But it does depend on whether you are working now, what you are earning, what you expect to earn in years to come etc etc, which is why people are asking you questions about your own financial circumstances, which you are not answering.

QrizB

tir21 said:

Isn't it better to take the hit on the tax now and build it up again then a hit on the tax when I'm 67?

All other things being equal* it makes no difference.

Let's say your pension is currently worth £40k (I've rounded to make the maths easier). You cash it in, 25% (£10k) is tax free and you pay 20% tax on the rest (£6k tax on £30k). This gives you (10+30-6) £34k that you invest in your ISA.

Over the next 12 years your investment doubles. You'll have £68k.

Or, alternatively, you leaventhe £40k invested in your pension. Over the next 12 years it doubles to £80k. You cash it in, 25% (£20k) is tax free and you pay 20% tax on the rest (£12k on £60k). This gives you (20+60-12) £68k, exactly the same amount.

* All other things are rarely equal but you've not yet given us any other details ...

tir21

Marcon said:

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?

Can you change the investments in which the scheme is held?

Are you sure you can take out all the money? If it's a 30 year old pension and it's a defined contribution scheme, then you may find your only choice is to take tax free cash and the rest as an annuity. 

To access all of it, you might need to transfer to a more modern contract - and if the scheme has any 'safeguarded rights' (basically some sort of promise such as a Guaranteed Annuity Rate), you'd need to pay for regulated advice because the value is over £30K. 

If it's a defined benefit scheme, you would definitely need to transfer before you could access the whole lot in one go - and think £5K+ for the necessary advice.

5k for advice?