Small pension pot, trying to take lump sum
Discussion
Aged 67. I have 2 defined benefit pensions, now in payment, plus the state pension. Combined, these are paying around £24k a year gross. I'm also still working (sole trader). Slowing down a bit now, so profit is around £10k.
I also have a DC pension pot from a part time job, pot is around £9.8k.
If I convert this to an annuity, it would pay next to nothing.
I figured that I'd take the tax free lump sum, then leave the rest until I actually need it. If I took the whole sum now, I might slip into the 40% tax band.
I phoned the scheme administrator, explained what I wanted to do, and they sent me a load of forms. I filled them in and posted back, but apparently I ticked some wrong boxes - quotation showed the lump sum as taxable.
I phoned again, explained again what I wanted to do, and waited for another form to arrive.
Now got an email saying something else is wrong - something about not saying where I wanted the flexi-access drawdown remainder to be invested?
Why are L&G making this so difficult to understand? With such a small pot, paying an IFA really wouldn't make sense.
When I took my DB pensions, it was dead simple - phone call to Mercer, sign a form, get paid monthly.
I also have a DC pension pot from a part time job, pot is around £9.8k.
If I convert this to an annuity, it would pay next to nothing.
I figured that I'd take the tax free lump sum, then leave the rest until I actually need it. If I took the whole sum now, I might slip into the 40% tax band.
I phoned the scheme administrator, explained what I wanted to do, and they sent me a load of forms. I filled them in and posted back, but apparently I ticked some wrong boxes - quotation showed the lump sum as taxable.
I phoned again, explained again what I wanted to do, and waited for another form to arrive.
Now got an email saying something else is wrong - something about not saying where I wanted the flexi-access drawdown remainder to be invested?
Why are L&G making this so difficult to understand? With such a small pot, paying an IFA really wouldn't make sense.
When I took my DB pensions, it was dead simple - phone call to Mercer, sign a form, get paid monthly.
Another phone call just now.
I have to tell them which "investment pathway" I want to use for the remainder of the pot.
Apparently "whichever fund is actually going to keep up with inflation the best" isn't an option....
The current fund has been dropping by £50 to £100 a year since I left the job 6 years ago.
I'm no financial wizard, but I'm not stupid. Certainly smarter and more savvy than most of my ex-colleagues. Most of them had no idea that paying into a pension meant getting "free money" (contributions) from the employer.
If I can't figure it out, how is someone who left school with a couple of GCSEs going to make sense if it?
The whole system seems to be geared to making money for the pension companies, and bamboozling the employees.
I have to tell them which "investment pathway" I want to use for the remainder of the pot.
Apparently "whichever fund is actually going to keep up with inflation the best" isn't an option....
The current fund has been dropping by £50 to £100 a year since I left the job 6 years ago.
I'm no financial wizard, but I'm not stupid. Certainly smarter and more savvy than most of my ex-colleagues. Most of them had no idea that paying into a pension meant getting "free money" (contributions) from the employer.
If I can't figure it out, how is someone who left school with a couple of GCSEs going to make sense if it?
The whole system seems to be geared to making money for the pension companies, and bamboozling the employees.
Yes, the remaining 75% is now the sticking point.
If it was possible to just put it in a cash fund that moved it around to whichever bank was paying decent interest, and then get taxed as income on future withdrawals, that would probably be the best option.
Should be possible to have this automated, so minimal management fees, and the chance of at least not losing money every year.
There must be loads of people with tiny DC pots from minimum wage part time employment?
I paid in the maximum amount that the employer would "match" for nearly 10 years, but I was only working 16 hours a week, so the pot is small.
Last time I checked, the annuity rate was something like 3%, so a pension of £25 a month.
In contrast with my 2 DB schemes, DC is a bit rubbish for the average or below average worker. Probably makes more sense for higher rate tax payers?
If it was possible to just put it in a cash fund that moved it around to whichever bank was paying decent interest, and then get taxed as income on future withdrawals, that would probably be the best option.
Should be possible to have this automated, so minimal management fees, and the chance of at least not losing money every year.
There must be loads of people with tiny DC pots from minimum wage part time employment?
I paid in the maximum amount that the employer would "match" for nearly 10 years, but I was only working 16 hours a week, so the pot is small.
Last time I checked, the annuity rate was something like 3%, so a pension of £25 a month.
In contrast with my 2 DB schemes, DC is a bit rubbish for the average or below average worker. Probably makes more sense for higher rate tax payers?
5pen said:
The numbers you’ve given don’t suggest that taking the whole lot will push you over £50k and into the 40% tax bracket (£24k + £10k + £9.8k = £43.8k - and not all of that is taxable?).
If you still don’t wish to take the whole lot, I’d suggest investing the crystallised remainder in 100% equities in a low cost global tracker fund. If it’s been losing value over the last 6 years it sounds like it’s been invested in non-equity stuff and given that it is a small part of your overall pension situation, you could afford to be exposed to a little risk.
I didn't realise that the 40% band started at £50k now.If you still don’t wish to take the whole lot, I’d suggest investing the crystallised remainder in 100% equities in a low cost global tracker fund. If it’s been losing value over the last 6 years it sounds like it’s been invested in non-equity stuff and given that it is a small part of your overall pension situation, you could afford to be exposed to a little risk.
I don't really need all the cash right now, but it'll come in handy when I stop working, so I want to leave it somewhere relatively sensible for now.
I was only triggered into requesting the 25% tax free sum because I'd read rumours about that option possibly being withdrawn, and the fact that I'm having a lot of work done on the house which is taking pretty much all my monthly disposable income.
I don't want to start running down my savings just yet.
Plan is to stop working in 3 or 4 years, with everything done on the house, and a £30k rainy day fund, plus the remainder of the pension pot in reserve.
Still not had the forms they said they would post to me nearly 2 weeks ago.
Never received the email with the "what to do with the balance" options that I was assured would be sent on Wednesday.
Getting a bit fed up with them now.
Would it be any easier if I just asked them to pay me the whole lot?
Never received the email with the "what to do with the balance" options that I was assured would be sent on Wednesday.
Getting a bit fed up with them now.
Would it be any easier if I just asked them to pay me the whole lot?
Just confirms what I thought - "company" DC pensions for the average worker are a con, just a way for the fund administrators to make money.
Doesn't make sense how the pot can keep going down, as well as losing real value because of inflation. When I quit the job 6 years ago, the pot was a shade over £10k. Now it's £9,766.
Doesn't make sense how the pot can keep going down, as well as losing real value because of inflation. When I quit the job 6 years ago, the pot was a shade over £10k. Now it's £9,766.
LastPoster said:
Company pension scheme default funds tend to be very conservative to avoid complaints about volatility affecting people’s finances at retirement time
It’s rare that there is NO choice of fund though, did you investigate this?
The last statement I received, about 3 years ago, said that, by default, it would go into a "safe" fund. IIRC, it was something like 75% cash, 25% bonds. That made sense.It’s rare that there is NO choice of fund though, did you investigate this?
Not sure how a cash fund can lose like that, unless their management fees were higher than the interest.
I'll be honest though, because this pension was so small compared to what I'm getting from my DB pensions, I didn't pay that much attention to it. I figured it would do just as well with them as it would in a decent savings account if I left it alone for a couple of years.
ferret50 said:
Have you used your ISA allowance this year?
Transfer the entire pension pot into an ISA, then when you need to draw it out it's tax free....
Surely you still have to pay tax on the way out of the pension pot? Tax-free once it's in the ISA though.Transfer the entire pension pot into an ISA, then when you need to draw it out it's tax free....
I haven't bothered with an ISA for quite a few years, as there's not been a financial advantage since the £1000 tax-free interest allowance was brought in.
I have around £23k in savings accounts, which even at 4.x% is just below the annual allowance.
Also, interest rates on high street ISA accounts has been lower than the best savings accounts for quite a while. I've got current accounts with 4 banks, and take advantage of their regular saver accounts, moving the money on every 12 months.
I'll shop around for rates when I get my hands on the pot, but in all likelihood it will get spent on home improvements within 12 months. Still got 2 rooms to gut and refurb.
Simpo Two said:
You'd have been better off if you'd left it in a current account - and that wouldn't have attracted charges.
I know you were 60+ at the time but I would consider if you received good advice. Could their attempt to 'avoid complaints' actually lead to one?
I was contributing 6%, so around a tenner a week, less than £5k in total. I think the employer's contribution was 4%.I know you were 60+ at the time but I would consider if you received good advice. Could their attempt to 'avoid complaints' actually lead to one?
Whatever happens, I'll get more out than I put in.
If you meant I should've just taken it all out as soon as I could, you are right. I was convinced it would perform better than a savings account as soon as the markets picked up, so I left it.
I thought I would have to leave it until state retirement age (which was 13 months ago), but it seems I could've taken it earlier.
I'll call them again on Monday, withdraw the lot, and stick it in the best-paying savings account that I can find. Looks like Lloyds are offering a 4% ISA, same rate as their best instant access account, so an ISA would make sense now (getting close to the tax free interest allowance)
ferret50 said:
Probably, but chat to your chosen provider before transfering.
Even if your only option is to withdraw to your current a/c and then to your ISA provider....
£2500 TFA
£7500 X 20% minus £1500 gives £6000 plus £2500 .... £8500
https://www.cobensdirect.co.uk/
Talk to Nik or Adam, they MAY have a way to let you keep the £1500 tax bit but I'd be suprised!
Plonk it in the fund called PH tech, it's up by 50% so far this year, may fall as well as plummet, but in a year you could be a bit better off......
Off topic, but I have a longcase clock that I think would benefit from a drop of oil, what type of oil and do you have a photo with a pointy thing for where. please?
The only spots you should ever oil on a longcase clock between proper services are where the pendulum block (the brass bit near the top, between the rod and the suspension spring) goes through the crutch (the slot or fork that sticks out and moves side to side), and the pallet faces (the 2 surfaces of the bit that rocks back and forth, in contact with the pointy-tooth escape wheel).Even if your only option is to withdraw to your current a/c and then to your ISA provider....
£2500 TFA
£7500 X 20% minus £1500 gives £6000 plus £2500 .... £8500
https://www.cobensdirect.co.uk/
Talk to Nik or Adam, they MAY have a way to let you keep the £1500 tax bit but I'd be suprised!
Plonk it in the fund called PH tech, it's up by 50% so far this year, may fall as well as plummet, but in a year you could be a bit better off......
Off topic, but I have a longcase clock that I think would benefit from a drop of oil, what type of oil and do you have a photo with a pointy thing for where. please?
Adding oil anywhere else on a dirty clock may get it going again, but it'll wear things out much faster, leaving you with a bigger bill to fix it when if inevitably stops again.
An English longcase needs a proper service every 10 to 20 years. Shouldn't need touching at all in between.
A proper service is a full strip down, in the workshop. Make good any wear and tear, ultrasonic clean, etc.
ferret50 said:
Thanks.
Full strip/rebuild around 8 years back, but the fellow mentioned 'occasssional drop of oil' so I'll attend to it now I have a clue, many thanks!
That'll be fine then.Full strip/rebuild around 8 years back, but the fellow mentioned 'occasssional drop of oil' so I'll attend to it now I have a clue, many thanks!
Proper medium-weight clock oil is cheap online, or sewing machine oil will do if you already have that in the house. Nothing out of an aerosol can though! Just a tiny drop at each point.
Gassing Station | Finance | Top of Page | What's New | My Stuff