Small Pensions - cashing in

Avantime1

I have 2 small pension pots; about £20k combined.

Since they were 'parked' up, a number of years ago, I have started work as a teacher. By the time I get to retirement age (67 in my case) I will have a reasonable pension; contributing the the TPS scheme.

I turn 55 in a few days and am looking to reduce my overheads. I want to cash in the 2 pensions (tax free for first 25%) and then the remainder at my current rate of tax. I want to use the money to pay off a personal loan which will then reduce my monthly overheads by about £300. The plan is to save this.

My question is; will I still be able / allowed to continue to contribute to my Teacher pension? I understand there is a limit to what I can draw down and continue. 

Marcon

Avantime1 said:

I have 2 small pension pots; about £20k combined.

Since they were 'parked' up, a number of years ago, I have started work as a teacher. By the time I get to retirement age (67 in my case) I will have a reasonable pension; contributing the the TPS scheme.

I turn 55 in a few days and am looking to reduce my overheads. I want to cash in the 2 pensions (tax free for first 25%) and then the remainder at my current rate of tax. I want to use the money to pay off a personal loan which will then reduce my monthly overheads by about £300. The plan is to save this.

My question is; will I still be able / allowed to continue to contribute to my Teacher pension? I understand there is a limit to what I can draw down and continue. 

TPS is a defined benefit scheme, so you aren't going to affected by the Money Purchase Annual Allowance (MPAA), which is what you have in mind.

Given the size of these pots, have you thought about using the small pots regime (if the provider allows it - not all do)? Each pot needs to be no more than £10K at the time you cash it in, so the actual size of each pot is going to be important - timing could be all! For more info see https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions The advantage of specifically asking to withdraw funds using the small pots regime is that it doesn't trigger the MPAA, and you can take 25% of each small pot in addition to the Lump Sum Allowance for tax free cash.

Otherwise you could simply cash them in as you currently intend, but beware triggering the MPAA if you might move to the private sector and the school you join doesn't offer membership of the TPS. That might matter if you want to add substantially to a defined contribution pension - the MPAA limits you to £10K a year (personal contributions + basic rate tax relief; and any employer contributions).

Dazed_and_C0nfused

Avantime1 said:

I have 2 small pension pots; about £20k combined.

Since they were 'parked' up, a number of years ago, I have started work as a teacher. By the time I get to retirement age (67 in my case) I will have a reasonable pension; contributing the the TPS scheme.

I turn 55 in a few days and am looking to reduce my overheads. I want to cash in the 2 pensions (tax free for first 25%) and then the remainder at my current rate of tax. I want to use the money to pay off a personal loan which will then reduce my monthly overheads by about £300. The plan is to save this.

My question is; will I still be able / allowed to continue to contribute to my Teacher pension? I understand there is a limit to what I can draw down and continue. 

It won't necessarily be at your current rate, could some of that extra ~£15k of taxable income land in a higher tax band?

dunstonh

An alternative option is to transfer them to the TPS

jimjames

Avantime1 said:

I have 2 small pension pots; about £20k combined.
 I want to cash in the 2 pensions (tax free for first 25%) and then the remainder at my current rate of tax. I want to use the money to pay off a personal loan which will then reduce my monthly overheads by about £300. The plan is to save this.

If you're a teacher how close to the 40% tax band are you? If this £20k will put you over there could be a benefit in taking one this tax year and one next to reduce the tax you pay on it. No point paying 40% of it away in tax if you don't need to

Marcon

dunstonh said:

An alternative option is to transfer them to the TPS

But that won't meet OP's objective of paying off their personal loan....

dunstonh

Marcon said:

dunstonh said:

An alternative option is to transfer them to the TPS

But that won't meet OP's objective of paying off their personal loan....

But is robbing your retirement fund to pay for something in your working life a sensible objective?

Silvertabby

dunstonh said:

Marcon said:

dunstonh said:

An alternative option is to transfer them to the TPS

But that won't meet OP's objective of paying off their personal loan....

But is robbing your retirement fund to pay for something in your working life a sensible objective?

But a moot point if OP has been in TPS for more than 12 months, which is the impression I get.

dunstonh

Silvertabby said:

dunstonh said:

Marcon said:

dunstonh said:

An alternative option is to transfer them to the TPS

But that won't meet OP's objective of paying off their personal loan....

But is robbing your retirement fund to pay for something in your working life a sensible objective?

But a moot point if OP has been in TPS for more than 12 months, which is the impression I get.

I was going by the second paragraph, which suggests more recent.

Silvertabby

dunstonh said:

Silvertabby said:

dunstonh said:

Marcon said:

dunstonh said:

An alternative option is to transfer them to the TPS

But that won't meet OP's objective of paying off their personal loan....

But is robbing your retirement fund to pay for something in your working life a sensible objective?

But a moot point if OP has been in TPS for more than 12 months, which is the impression I get.

I was going by the second paragraph, which suggests more recent.

Hmmm - perhaps OP can clarify?

Marcon

dunstonh said:

Silvertabby said:

dunstonh said:

Marcon said:

dunstonh said:

An alternative option is to transfer them to the TPS

But that won't meet OP's objective of paying off their personal loan....

But is robbing your retirement fund to pay for something in your working life a sensible objective?

But a moot point if OP has been in TPS for more than 12 months, which is the impression I get.

I was going by the second paragraph, which suggests more recent.

A previous post indicates they've been in the TPS for well over 12 months.