Advice needed with pension savings and options

TwoRivets

Hi

I'm 65 this autumn and because my original retirement age was 65 I've been offered a retirement options pack which includes leaving alone until I'm 67. 22 years ago I managed to rescue a private pension and move the lump sum that I rescued into a retirement fund which at the moment stands at £60,634. My options are cash lump sum, flexible income, guaranteed income, mix and match or leave it where it is until I'm 67. Due to the current climate with the economy and the government looking to raise money via any means possible, I'm thinking of taking the lump sum now. I don't think there's a enough money to provide an income and any income it does provide will be taxed and more so when I officially retire. I also think the fund will lose money over the next two years with the way it is invested. I'm thinking of putting the lump sum in a high interest earning account and making it a joint account with my wife to ease any inheritance tax. I'm not looking for a wave of the magic wand to fix my conundrum just some help, guidance and/or a second opinion on my options and thoughts.

Regards and thanks

Two Rivets

eskbanker

Due to the current climate with the economy and the government looking to raise money via any means possible, I'm thinking of taking the lump sum now

Not convinced that's a sensible rationale?

I don't think there's a enough money to provide an income and any income it does provide will be taxed and more so when I officially retire

You have the choice of 25% tax-free in one block just now, or per payment later?

I also think the fund will lose money over the next two years with the way it is invested

Invest it differently then?

I'm thinking of putting the lump sum in a high interest earning account and making it a joint account with my wife to ease any inheritance tax

Again, not sure that withstands objective scutiny?

Beyond the above observations, it's difficult to offer meaningful guidance without more knowledge of the rest of your financial circumstances, such as income pre- and post-retirement (i.e. how much you'll rely on this money and when), tax situation, other pensions, etc…

daveyjp

Before doing anything stop doom scrolling. It isn't healthy.

You will be taxed, but you weren't taxed on the money which was invested. Losing valuable cash by not investing wisely in a bid to avoid tax can be an expensive fools errand.

Albermarle

https://forums.moneysavingexpert.com/discussion/6682504/advice-needed-with-pension-savings-and-options

Firstly from the little info supplied, I am not sure where this deadline date of 67 comes from?

Making decisions based on speculation about future legislation is usually not a very good idea.

Many people did stupid things based on speculation before the last two budgets and wished they had not.

dunstonh

Due to the current climate with the economy and the government looking to raise money via any means possible, I'm thinking of taking the lump sum now.

As mentioned above, there is no logic in that thought.

I also think the fund will lose money over the next two years with the way it is invested.

Change the investments then.

I'm thinking of putting the lump sum in a high interest earning account and making it a joint account with my wife to ease any inheritance tax. 

Why would taking the lump sum from the pension and putting it in an interest-bearing account make it better? Why do you think making it a joint account will ease any inheritance tax?

At your age, you should be putting more into a pension. You will make more than a high-interest account or an ISA. Even if you stuck to money markets.

Marcon

I managed to rescue a private pension and move the lump sum that I rescued into a retirement fund which at the moment stands at £60,634.

Why 'rescue'? It sounds as if you simply transferred one pension into another. If you could clarify your objectives in doing so, that might give a clue about what you're trying to achieve now.

I'm thinking of taking the lump sum now. I don't think there's a enough money to provide an income and any income it does provide will be taxed

If you take the whole £60,634 then only 25% will be tax free. The rest will be taxed at your marginal rate - and if you've got other taxable income, that could push you straight into higher rate tax.

 I'm thinking of putting the lump sum in a high interest earning account and making it a joint account with my wife to ease any inheritance tax.

There is no IHT when assets are transferred from one spouse to the other.

Maybe a free appointment with PensionWise, who give impartial information and guidance, is your next step: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

That would help you to understand what you've got now, which in turn will put you in a better position to decide on what to do next.

DRS1

As people say taking the whole pension in one lump may not be a good idea from a tax point of view. Especially as it doesn't sound as if you need the money.

Are you still working? Do you intend to retire at 67 or is that just when you will start to get the state pension? And do you have other pensions which will kick in sometime? Maybe you are already getting a pension?

Some people might use a pension like your retirement fund to bridge a gap - eg until the state pension kicks in. For example if their taxable income was low they might use it to fill up the rest of their personal allowance before the state pension starts to use it all up. We don't know if that is remotely relevant to your situation but if so then you would use the flexible income option instead of the one off lump sum

You say the retirement fund is 22 years old. That suggests it may not be able to do all the things set out in your list of options. You should check whether you might need to transfer it to a newer scheme if you want to use the flexible income approach for example.

Before you say why would they tell you you can do something which the retirement fund can't do - the answer is that the list of options you were given is the standard list. I got a similar one for pensions which are a lot older than your retirement fund and buried somewhere in there was something like "you may need to transfer to a newer scheme if you want to do this".

TwoRivets

Thanks to everyone who's replied and let's see if I can clarify and/or give more information.

I'll be 67 in November 2028. I've been told I need two replacement hips with next year being the earliest I'll get the first one replaced and I may not be able to stay in employment as they are restricting my mobility now. So the idea was I may need to access money over the next two years for lifes unexpected tricks, hence high interest account. I started the original pension in 1985 but by 2004 it wasn't worth the paper it was written on (explained by financial advisor who rescued it and over the years by people who ended up in the same boat on the same plan) due to the original company being taken over and successive take overs ended up with a company that didn't do pensions and never advised me to move my fund, it took the ombudsman to rescue a few thousand. I looked at the Pension Wise website and came away under the impression you can take up to £120,000 tax free. When I get to 67 there will be a company pension and full state pension kicking in but in all honesty it's the next two years that are worrying me.

Thanks again, if there's anything else needing clarification please ask.

Marcon

I looked at the Pension Wise website and came away under the impression you can take up to £120,000 tax free.

You can if you have a 'pot' worth £480,000 (ie 25%) - and from the sound of it, that's not the case. There are very limited cases where people may have higher than 25% tax free cash available depending on the exact terms of their scheme, but it's far from being a general principle as I think you've assumed?

Spreading your withdrawals over two years rather than just one year might help to keep you out of higher rate tax.

It sounds as if your other scheme might be a defined benefit (DB) scheme. Is there anything stopping you taking maximum tax free cash from that, given you're reached the normal retirement age for that scheme? If it is a DB scheme, you'd have to start drawing the pension at the same time, but that would all help the 'hip' fund.

mrklaw

what income do you have at the moment? soundsl ike you’re working but might not be able to from next year - so some income to bridge to state pension might be useful?

what income do you need now, and what do you need when the state pension starts

do you ahve other pensions already paying out or any other income coming in after you stop working?

without the above its not meaningful to offer any suggestions. But my main suggestion would be ignore the government or more importantly the clickbait articles, and try to remove emotion from your actions. look at your needs, consider the risks of loss of job due to medical reasons etc and what you might need to cover that off or for additional income/a pot to dip into

that pot has a job - you just have to decide what it is. Until then you need to look after it

TwoRivets

Marcon

Thanks for the reply. The other scheme was a final salary scheme before it changed and I was in the final salary scheme before it changed. I cannot access anything from this until I'm 67.