What Can I do with a small personal pension?

md58

I have a Scottish Widows Pension, value is under £16k. I will turn 50 this year and had hoped to receive the full amount. I have just found out that I can only have 25% and receive the other 75% in half yearly amounts until death. I also have a pension with the NHS. What are my options with the Scottish Widows pension as it is such a small amount.

jem16

Exactly as you have been told. You can have 25% tax free and the rest goes to buy an annuity.

EdInvestor

If it has no protected rights in it, you could also transfer it to a SIPP, take the 25% tax free cash, and leave the rest invested until later, when it might grow and pay you a higher income when you actually retire.

dunstonh

No need to transfer it. It can be left where it is.

trickytrolleys

EdInvestor wrote: »

If it has no protected rights in it, you could also transfer it to a SIPP, take the 25% tax free cash, and leave the rest invested until later, when it might grow and pay you a higher income when you actually retire.

apparently some SIPPS can now accept PR money, i know this is true but i dont know anymore details im afraid

jamesd

md58, you can only get the 25% now. Your choice is what to do with the rest.

You could leave it invested and not take any money out, so it continues to grow over time.

You could buy an annuity, in which case you should ask an IFA (Hargreaves Lansdown is one) to find you the best available annuity rate for your health state (more if you're a smoker or at risk of dying early in some other way). This is called the open market option and often results in a higher annuity rate than the pension company you start with offers.

Or you could use income drawdown, where the money remains invested and you take an income from it based on how your investments do. A SIPP like the Hargreaves Lansdown is only one way to do income drawdown and an IFA could tell you about others. Income drawdown is likely to pay you more money but with more risk.

The predictability of the NHS pension makes the income drawdown's potential to pay more money over time of more interest because you'll have the NHS pension as your core income.

If you don't want to be bothered with investments or managing the invested money, buying an annuity is probably the way to go.

Primrose

You don't say whether you're actually planning to retire and stop work when you hit 50. If this is the case, you may well have a very long period of time ahead of you where your pension will increasingly be hit by inflation every year, so it makes sense not to draw it now unless you absolutely need it, especially as the stock market is pretty low and you would be drawing income from a low base. As others have suggested, it would make sense to leave it invested for as long as possible to give the stock market time to recover. If you take your 25% tax free cash, make sure you use up your ISA allowance to retain its ability to provide you with a tax free income.

EdInvestor

dunstonh wrote: »

No need to transfer it. It can be left where it is.

Since when did SW allow drawdown on pensions worth 16k?

dunstonh

EdInvestor wrote: »

Since when did SW allow drawdown on pensions worth 16k?

The OP hasnt said anything about drawdown. The comments about drawdown came from others after I made my post.

Its a small fund, it can only pay out 25% and the OP is 50 so annuity purchase is probably daft. It may make sense to take nothing from it and leave it fully invested and try and make some money with it so it can be taken later in life when it has a real value.

md58

My own IFA advised that I would be able to receive the entire value of the pension back as a lump sum as long as the total value stayed below 16k. When i got in touch with Scottish Widows regarding his advice it was they who informed me of the 25% lump sum only and the rest in half yearly amounts. Thankyou to all who advised!

jem16

md58 wrote: »

My own IFA advised that I would be able to receive the entire value of the pension back as a lump sum as long as the total value stayed below 16k.

Did your own IFA know you also have a pension with the NHS?

If not he was correct as under trivial commutation rules you can have the whole pension pot if the total of ALL pensions is less than £16k.

If he did know then he's wrong or you misunderstood.