cookstar

iTrader: (6)

The wife has a very small pension pot from a previous employment from many years back, with Standard Life. The total pot is worth about £9000, which is peanuts for a pension, so we would like to cash it in now.

She spoke to them and they said that they wont cash it until she is 55 at the earliest, although you are able to transfer it to another pension provider if she wanted.

Is it possible to transfer it to another pension provider that will then in turn allow her to just cash out of it.

Failing that are there any other options available to get this cash now rather than wait years and years for what will probably be a £20 per month pension.


Thanks guys.

Coffin Dodger

I assume you can't cash it in because of the tax relief on any contributions made to it, well until you're old anyway I guess there may be ways to get at the money but you'll probably have to give the Inland Revenue a chunk.

cookstar

iTrader: (6)

No idea mate, not up to speed about how pensions work at all.

jonc

I'd leave it where it is as the transfer fees could eat into the pension by a significant margin.

tony de wonderful

I've got money in the Australian superannuation system, it's more than that but not that much. If I take it out I pay something like 30% tax on it so may as well leave it until I retire, it may only pay a few quid a week but it all adds up!

TelBoy

Without knowing your scheme's precise details, what you've been told is essentially the bottom line i'm afraid. They cannot allow early redemptions otherwise their cashflow forecasts would be impossible to manage.

Frustrating certainly, but presumably your wife will have been given all the "can't touch till you're 55" at the time she was sold the plan.

madscoob

iTrader: (3)

im'e in the same boat robbing ***** have about 15k of my money in a plan frozen since 2006 , i worked out i will need to live till 78 to get my own money back . that providing retire at 65

scoobiepaul

Not 100% sure but think you can only get 25% cash tax free at 55years old. Rest will provide a monthly payment which is taxable.

DonNedly

iTrader: (10)

I'm afraid the law dictates you cannot cash a pension in before you are 55 as it is meant to look after you in retirement. That applies to all pensions.
Once you reach pensionable age you can cash it all in if it is under a certain amount (the amount changes but when i worked in pensions it was about 3 or 4 grand) this is called triviality.
If your fund is over that amount you can take up to 25% as a lump sum and the rest must go into an annuity to provide an income through retirement.
(This was the case when i worked in pensions a few years ago)

EddScott

You can't take the "pot" of pension money early because HMRC do not allow it. You receive tax relief on the contributions so you can't just take the pot early. It has nothing to do with the pension provider not wanting to give you the money.

Pensions are OK as long as you make a proper commitment to them. Paying in a bit here and there over the years and then reaching retirement age to find it's not worth much shouldn't really be a surprise.

To the OP: your wife can't have the money until she reaches pension age (this is likely to go up before long too).

However, "triviality rules" exist. If your pension fund amounts to less than 10% of the lifetime allowance (£1.8m for 2011) then you can take the 25% Pension Commencement Lump Sum (Tax Free Cash) and have the rest as a one off payment less income tax at whatever rate you are on at the time.

Notice they've taken "Tax Free" from the lump sum?

TelBoy

Not true. The pension providers need legal protection against mass withdrawals in order to provide any meaningful pension projections and provision. It's a two-way arrangement that suits both the pension providers and Inland Revenue. I'm being picky but it doesn't have "nothing" to do with pension providers not wanting to give you your money.

DonNedly

iTrader: (10)

It may benefit the pension providers but the reason they can't do it is the law. They couldn't give you the money even if they wanted to.
Thats me being picky

TelBoy

Yes but the implication was clearly that they didn't want the law, which isn't the case. You've over-egged it now i'm afraid.

EddScott

Unless I miss read your post, you implied that the reason people couldn't take their money early was something to do with the pension providers.

This is utterly wrong. HMRC do not allow it. Nothing to do with the pension provider.

TelBoy

There is no "utterly wrong" Ed. Let's spell it out. The law of England prevents people cashing in pensions. We all know that. The point i am making is that one of the reasons for the law is to prevent a run on assurance companies which could prevent them fulfilling their obligations, not just to avoid the tax headache or to "help" people save for their old age. Therefore a two-way mutual agreement, as i stated. Not "utterly wrong" or anything of the sort. Is that clear enough yet?

EddScott

There is nothing but utterly wrong!

If you make a £10,000 pension contribution and you are a 40% tax payer, you could then withdraw £14,000. The restriction is to stop us all making 20 or 40% out of the tax reliefs.

Taking your pension from a provider would be no different to taking an ISA from a provider if the relief wasn't there.


Nothing to do with some big conspiracy to diddle you out of every last penny

TelBoy

Sorry but you're seeing it from one side only. Yes the Government don't want to give back more than necessary in tax relief, but they could, if they wanted, change the law so that you could make withdrawals but with, say, a 50% tax penalty. Not difficult. But what both sides need, in particular the providers, is stability. You can't run a pension scheme intended for long term investment if you also allow random dipping in. The whole thing would come apart at the seams.

EddScott

Well in fact there are occasions where you can have money but with big tax penalties. If you die and have an unsecured personal pension (Income drawdown), the fund can be paid to a dependant with a 55% tax charge.

An ISA can be used as a long term investment and can be dipped into at any time. In fact I would suggest that for basic rate tax payers an ISA is a reasonable alternative to a pension.

Theres no reason why they couldn't introduce a 50% tax charge on withdrawing any uncrystalised pension payments - or 60 or 70. It would send out completely the wrong message to those retiring and be seen as another money grabber by the uneducated and be deemed to be pension raid part 2 by those of the Daily Mail variety.

Modern pensions are really only a platform to access funds from other investment providers. You could have a pension that doesn't actually have any of the funds held by the pension provider - a Standard Life pension but not one Standard Life fund. To take all your money out would not make any difference to Standard Life - other than a loss of charges on your pension by Standard Life.

Most modern investment providers and platforms offering pensions wouldn't care if pension money could come and go.

cookstar

iTrader: (6)

Thanks for the input guys, I have been chatting to her about this, and we have decided to just start a decent contribution to this provider and try to make it actually worth having come retirement.

EddScott

You could probably benefit from some advice regarding investment strategy if you are going to continue with the pension. Also possibly worthwhile finding out about charges etc. Theres been a big hoo ha over pension charges and 95% of it complete cobblers. Best to find out if the selling adviser is getting something for selling the pension - if so ask for some investment advice. If not then find someone local who is trustworthy. You should be able to just increase the premiums by phone or letter depending on provider and product to an extent. There is no harm paying a bit of money for good investment advice.

The big issue these days is where to put the money. ISA, pension, bond etc are just the wrappers around the investments. They just do different jobs and taxed differently.

chris-boris

iTrader: (7)

This is pretty much spot on with a couple of small amendments needed. Currently, the minimum early retirement age is 55. This was raised from 50 a couple of years ago by HMRC and as yet shows no signs of changing in the foreseeable future. There is one exception to this rule and that is if the member in question is ill and deemed to have an illness bad enough to warrant ill-health early retirement.

With regards to triviality, there are three very important points to make from the above statement:
1) the member must be aged 60 or greater
2) the combined pension benefits from all sources excluding state pension must not total more the 1% of the current Standard Lifetime Allowance - 1% = £18k for this tax year
3) 25% of the gross fund is taken as tax free cash then PAYE taxation at current emergency code (747L on a week 1 basis this tax year) is paid on the remaining 75%. If this means you have paid too much tax then its down to you to fill out a tax return and reclaim the money.

Some pension providers will ask for your current tax code and apply that when processing a triviality lump sum but its by no means par for the course.....

Midlife......

iTrader: (2)

Cookie..................I thought all your retirement stuff was tied to property

Shaun

chris-boris

iTrader: (7)

Overseas pension funds have different rules to our own. As you rightly state Australia is a prime example of this, allowing members to access their retirement savings early but with a higher level of tax to deter people doing so without a real need to. America is also a good example of this. I believe the government looked at doing something similar over here but decided not to pursue for whatever reason

chris-boris

iTrader: (7)

The £9k could be held in a property fund.....

EddScott

Lol, i put 10% of the LTA. Silly boy.

cookstar

iTrader: (6)

Not all mate, "all your eggs in one basket" springs to mind. I have a very good final salary pension myself, along with other things.

This was just a pension that my wife started with a previous employer, that she had all but forgotten about.

RLE

iTrader: (2)

Just going through this myself at the moment..............

Old company I worked for is winding up the pension plan and I've been told I can either cash it in or have it transferred to a pre chosen provider. Obviously slightly different circumstances for me than the OP but decided to bail.

Confirmed I will receive 25% tax free. I will be taxed on the remaining 75% at the higher tax rate but given my current earnings for this financial year (new start up business) I will be able to claim back 20% from HMRC.

Notice all has gone quiet despite a promised 4 week turnaround so this thread has given me a nudge to chase.

chris-boris

iTrader: (7)

What you are talking about here is a Wind Up Lump Sum or WULS. This broadly follows the same rules as a trivial commutation however the age restriction does nit apply as the Scheme will cease to exist in the near future.

You are correct about the 25% tax free then PAYE on the residual. This will be taxed at the emergency code as per a trivial commutation and yes, you will need to fill out a tax return to ensure you haven't overpaid.

May I be so bold as to ask that when you do chase cut the administrators a bit of slack. Believe me when I say we try and get everything done and inform members as best we can but with wind ups there is often alot of developments throughout that we simply don't know about until the 11th hour. Or reference, out of the 3 wind ups I have dealt with the average time to comets has been about a year. The longest I know of lasted about 4 years.....

RLE

iTrader: (2)

Thanks for the reply CB.

I wasn't aware these things can take so much time so appreciate the heads up. I had just been reading the information pack and the release of funds "no later than one month" was in bold suggesting this was more of a formality. In fact I've just noticed the cheque issued (£50.00) for admin fees to cover the release hasn't been cashed.

I wouldn't normally follow up with any vigour but they had given me a deadline to get my option accepted. Sods law due to an admin oversight on their part resulting in the forms being sent back to me, the revised declarations were only received by them a second time on the day of the deadline. I sent it special delivery so I can't see there being any issues but I just have visions of the sum being transferred to the new pension plan which is something I don't want.

Great to get an industry applicable comment so thanks again for taking the time to reply to my post specifically.