Pension question about tax free cash

No, it's not. But move it to an ISA and it's in the same 'taxfreeness', neither of which are totally taxfree any more (your pension fund is not taxfree).

Rob Graham

If one only had a pension pot of 12K I suspect that taking the lump sum would be almost pointless.

tim

If one only had a pension pot of 12k I would guess that 3k would be a very nice sum of money to splash out on a decent holiday or two. Taking it as an annuity and reducing state benefits would be pointless :-)

"Miss L. Toe" wrote

Or even, taking the whole lot under the triviality rules (fund being less than 15K)...

Can you do the opposite, take the 25% tax free lump sum and leave the remainder to grow. I would assume that you have to take the lot in one go. Given that if the pension is small or relatively small there is no point in taking it as you would only be letting the Government off paying some of the minimum pension contribution but the lump sum would be handy for paying off a mortgage for example.

Kevin

Nobody said that the Pension was small.

I introduced this to suggest that the idea of putting the money into an ISA is only a valid option if it is small.

tim

I didn't say that the op's pension was small. I said "if" the pension was small. I am thinking of my own circumstances that when I retire my pension payments will merely save the Government about £77 per week in guaranteed minimum pension payments. So what is the point of the pension. I might as well not draw it as it would still be growing and I could hope that the Government comes to its senses but by not drawing it I wouldn't get the 25%. Does anybody have any answers?

Kevin

Kevin

I didn't say that the op's pension was small. I said "if" the pension was small. I am thinking of my own circumstances that when I retire my pension payments will merely save the Government about 77 per week in guaranteed minimum pension payments. So what is the point of the pension. I might as well not draw it as it would still be growing and I could hope that the Government comes to its senses but by not drawing it I wouldn't get the 25%. Does anybody have any answers?

Kevin

Kevin

You can take the 25%, put the rest into an income drawdown and draw nothing down. (This then changes when you get to age 75).

Although finding a drawdown provider who will allow this might not be easy as you are supposed to have about 100k before you do drawdown (I dont know if that figure is a legal requirement).

Is there really 77 pounds pw difference between the state pension and the MIG, I thought it was about 20 pounds.

This is the problem with the MIG. It discourages pension saving. Sooner or later HMG will regret this policy.

how are you intending to benefit from this money if you leave it in the pension?

tim

Yes, I thought to benefit from draw down you had to have a sizable pot to make it worthwhile. Would anybody provide it for less than £100k?

Kevin

Correct, it wouldn't be £77, isn't the MIG about £120 but whatever the amount is.

Because the money would be growing whilst in the pension fund and the pension would offer no or little extra due to MIG.I guess that eventually, one hopes, there will be a old age pension that doesn't screw savers.

Kevin

You have to have enough in the pot to cover the risk that the pot doesn't grow at the rate that you draw funds.

The bigger the pot, the less you are likely to draw from it.

I doubt that anybody will provide you draw-down with less than 100K. ISTM that 100K isn't really enough

Kevin

The simple way to cover that risk is to put tighter limits on the amounts that can be withdrawn.

I disagree - the bigger the pot the more likely you are to want to get it out and into something that can be passed down to your heirs.

A lot should depend on what you have outside of pension funds.....

Is the 100k that is always talked about before or after taking the 25% tax free lump sum ? (Which Phoney Liar has now renamed to make it easy to start taxing in a year or two.)

Yes, if you move it into a drawdown plan and then don't draw any. Such a scheme may or may not be offered by the original pension provider. If not, you'd have to move it to someone else. Either way, it's a move and may trigger a penalty. You've got to be over 50 (55 in 2010) to do all this, you may know.

Rob