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[Terbs]

I have some small pensions with Rothesay. Mainly residue left over from previous transfers. I have had a letter from them offering me one off lump sum payments. Anybody else had this offer from a pension company.

I don't understand tax codes, but the biggest pension is £960 per year. This is paid £80 month, but they stop £36 pm tax. Giving me £44.
Obviously, they are stopping tax also from the amount my state pension is over the £12,570 tax allowance.
They have offered me £8,500 final lump sum payment. What I am concerned about is how they are going to tax it.
Any suggestions

[LC0112G]

Chances are the £8500 will be classed as income in the tax year you receive it, so will be taxed at 20/40/45% depending on what your marginal rate of tax is in that year.

However, it's also possible that HMRC will initially think you are going to receive £8500 every month for the rest of the year, rather than just as a one off payment. If that happens you may pay a large amount of tax initially, particularly if it's paid in April/May, but the excess will then be refunded the throughout the year.

If they're offering £8500 to buy you out of a £960 p/a pension, then they will 'lose'/you will 'win' if you live less than 8.85 years. They will 'win'/you will 'lose' if you live more than 8.85 years. So "do ya feel lucky punk  - well do ya?"

[omega2018]

Agree HMRC are crap on one off payments and will often treat them as if you're going to get the same every month.  I'm assuming these are defined contribution pensions not defined benefits (AKA final salary).  Personally I would (and have) transfer them all into one SIPP with a low cost provider like Vanguard.  That way you'll know you are getting near enough the full value and you can then decide how and when to take the benefits, probably a 25% tax free lump sum then drawdown what you want/fits with your tax situation, as and when you want.

[jonathanh]

reading between the lines a bit here but i am guessing these are defined benefit pensions and the scheme is in the process of winding up and transferring to an insurer.  that is what Rothesay life are.

if that is right then i expect the lump sum offered is known as a winding up lump sum and as you have commenced your pension, taxed as income.  The offer letter you have received should say this somewhere.

It seems like you are being taxed at 45% on the £80 per month pension.  You'll have to check if that is right but if it isnt you may need to sort it with HMRC, possibly completing a tax return.

also building on LC0112G's comment about 8.85 years,  don't forget the contingent spouse's pension which will be extinguished by a winding up lump sum.  its the only time it happens, normally commutation of pension for lump sum only impacts yours and not your spouse's. 

The main reason for this being offered in winding up scenario is that the operating cost of paying a small pension is material vs the pension ( payroll/admin etc)  cleaning up small pots makes admin simpler. 

hope this helps

[Mr Skrunts]

Maybe not 100% relevant but Pension related still.

Just had this in my email ad maybe worth considering for some. (Posted at the end)

My situation .
I had 2 pensions that have not been paid into since I was 20 odd years old (now 64) and had forgotten about them.  As I have moved house a few times it seems the address changes have always caught up on the pensions details.

1st one with Prudential matured this year year with a final value of £4040 with 2 choices, Take it all, Or split into Half now and reduced monthly payments or no lump sump and higher monthly payments of a few £ per month.

I was advised when I cashed it the UK Gov would take 25%, either way I cashed it and used it to carry on setting up in business.

The works pension was valued at around £35k a year or 2 ago, and now seems to be worth 10 times the Pru value at approx £44k deduct the Tax so will get options I would think same as Pru pension

But not sure now what to do with it knowing what I have just read regards the state pension.  Plus not knowing if the the maturity date remains the same as the original date to retire at 65

https://moneyweek.com/personal-finance/pensions/603808/should-you-defer-your-pension-and-stay-in-work?utm_term=36051AF0-87ED-438E-B9D2-E4FCE239B6B6&lrh=74ff7ee269e60fbb9291912e1b9028e7f2a50c9c9bbd97b7e6c4026d6c7b5014&utm_campaign=3854FBCB-FE1F-457E-9C9A-87C5805A0127&utm_medium=email&utm_content=41B36A8A-C2AA-4671-AAEA-45E428806617&utm_source=SmartBrief

[Terbs]

Ok, to clear up any confusion....the three small pot pensions I have been offered are two tiny pensions (residue) when I transferred the main amount from Prudential to another company. The third amount is from when I contacted out of SERPS for a short time. These pensions were taken when I retired, 25% tax free lump sum, then the rest paid as pension.
Evidently, due to pension changes, these small pots can be offered as a wind-up deal.
At the moment, the amount I receive from State Pension exceeds the Personal allowance (PA), so the amount more than the PA is added to the SERPS pension, then taxed at 20% and that tax is taken from my monthly payment from them.

So, on that basis, I assume the amount I receive over the PA, will be added to the £8500, then this amount taxed at 20%, and taken from the £8500. I will then receive no more payouts from the pension company.
Obviously I have already paid a bit of tax on the residue this year, and assume that this will be adjusted at the end of the tax year.
My main private pension, from another company, is taxed at 20%, and again, I assume that come the new tax year, my residue over the PA will then be added to that pension for tax purposes.

[LC0112G]

Yes, you're basically correct. However, the way HMRC/PAYE works is that they see you getting a 'lump' in month one, and then assume you'll be getting the same every month for the rest of the tax year. This results in you paying a lot of tax on the lump in the first month, and then in subsequent months they basically refund you a bit when you don't get the same lump in months 2,3,4 etc. At the end of the year it will (or should!) all come out even, but you will have paid tax up front that then gets refunded.

If the lump you get is £8500 ish, and if HMRC then assume you'll be getting that every month, then they'll work out that your income for the year will be well over £100K, and that'll put you into the 45% tax bracket. It might also start affecting any benefits you are on. It's this kind of thing you need to make sure does not happen, coz it can be a ball ache to sort out afterwards.

If the payment is in April (month one of the tax year) then the above is almost bound to happen. If it's late in the tax year (Nov, Dec, Jan) then it's usually less severe since your yearly income won't look like being anywhere close to £100K (or £50K for 40%).

[LC0112G]

Maybe not 100% relevant but Pension related still.

Just had this in my email ad maybe worth considering for some. (Posted at the end)

My situation .
I had 2 pensions that have not been paid into since I was 20 odd years old (now 64) and had forgotten about them.  As I have moved house a few times it seems the address changes have always caught up on the pensions details.

1st one with Prudential matured this year year with a final value of £4040 with 2 choices, Take it all, Or split into Half now and reduced monthly payments or no lump sump and higher monthly payments of a few £ per month.

I was advised when I cashed it the UK Gov would take 25%, either way I cashed it and used it to carry on setting up in business.

The works pension was valued at around £35k a year or 2 ago, and now seems to be worth 10 times the Pru value at approx £44k deduct the Tax so will get options I would think same as Pru pension

But not sure now what to do with it knowing what I have just read regards the state pension.  Plus not knowing if the the maturity date remains the same as the original date to retire at 65

https://moneyweek.com/personal-finance/pensions/603808/should-you-defer-your-pension-and-stay-in-work?utm_term=36051AF0-87ED-438E-B9D2-E4FCE239B6B6&lrh=74ff7ee269e60fbb9291912e1b9028e7f2a50c9c9bbd97b7e6c4026d6c7b5014&utm_campaign=3854FBCB-FE1F-457E-9C9A-87C5805A0127&utm_medium=email&utm_content=41B36A8A-C2AA-4671-AAEA-45E428806617&utm_source=SmartBrief

Skrunts - go and see an IFA - a proper whole of market INDEPENDENT Financial Adviser - not some bank rep or insurance co employee. They will assess your options, taking into account your desires and explain to you what is going on. It is VERY, VERY likely they will get you a better deal for your money that what you're offered by the companies directly - yes even after you've paid their fees. They might charge you 1-3% of your pot, but could easily get a 20% higher payout

[Mr Skrunts]

Skrunts - go and see an IFA - a proper whole of market INDEPENDENT Financial Adviser - not some bank rep or insurance co employee. They will assess your options, taking into account your desires and explain to you what is going on. It is VERY, VERY likely they will get you a better deal for your money that what you're offered by the companies directly - yes even after you've paid their fees. They might charge you 1-3% of your pot, but could easily get a 20% higher payout

I took advice, But chose to take the money as the cash can
 and will continue to make more money with my plans that it will ever earn in the hands of a company looking after themselves rather than me. 

[Doctor Gollum]

Good luck with that.

[LC0112G]

Scrunts - you cannot possibly know that. Cash rarely makes gains over inflation. Even a simple tracker funds will beat cash, typically returning 3-5% above inflation. More advanced (and yes riskier) funds can return 8-12%. I aim for an average 8% above inflation (so typically 10%-12% absolute).

The questions you are asking imply you don't understand  how your pension works, or what it's worth. A good IFA will explain all that for you, and if s/he thinks you're already doing a good job will tell you so, and not charge you a penny. However, when it comes to 'cashing in' a pension an IFA does have access to better 'deals' than the general public, so you WILL get more money from them even after charges than you can get by yourself.

The man from the Pru is not an IFA. The man in the Bank branch is not an IFA. The Pensions Advisory Service (PAS) people are not IFA's. Only real IFA's can call themselves IFA's nowadays.

[Mr Skrunts]

Scrunts - you cannot possibly know that. Cash rarely makes gains over inflation. Even a simple tracker funds will beat cash, typically returning 3-5% above inflation. More advanced (and yes riskier) funds can return 8-12%. I aim for an average 8% above inflation (so typically 10%-12% absolute).

The questions you are asking imply you don't understand  how your pension works, or what it's worth. A good IFA will explain all that for you, and if s/he thinks you're already doing a good job will tell you so, and not charge you a penny. However, when it comes to 'cashing in' a pension an IFA does have access to better 'deals' than the general public, so you WILL get more money from them even after charges than you can get by yourself.

The man from the Pru is not an IFA. The man in the Bank branch is not an IFA. The Pensions Advisory Service (PAS) people are not IFA's. Only real IFA's can call themselves IFA's nowadays.

My point regards my Pru pension was that the yearly payout is worthless compared to what I can earn utilizing it in other ways.

We all have different views and options as to what we do and how we structure our lives.  My other pension may remain and run along side my state pension when I am old enough.

In the mean time the money once cashed was more useful to be used to sort out odds and ends.

So in-the future with financial advice, I will invest into various options and utilities, but also have options with fixed term and easy access accounts, like an example I have never had an ISA but found out over the last month that Martin Lewis has mentioned they may reducing the limits, and some one else mentioned its possible to multiple ISA's where i thought you were only allowed 2 , 1 being a stocks and shares.  Another friend has the the max amount in "Ernie" and is lucky enough to make a nice yearly earner from it.

I came into some money many years ago and talked with my brother about putting some of it into Scottish widows, he advised against it, I wish i had ignored him.

But I stay open minded, and any advise is always welcome.

Same with credit cards with the amount of air miles that can be accrued as that can easily exceed 10k miles a month.

We have decided to buy a house as I currently live on my own so as we move in together more space will be required so funding a mortgage may become the next priority but at 64 wont be simple.

[Rangie]

Scrunts - you cannot possibly know that. Cash rarely makes gains over inflation. Even a simple tracker funds will beat cash, typically returning 3-5% above inflation. More advanced (and yes riskier) funds can return 8-12%. I aim for an average 8% above inflation (so typically 10%-12% absolute).

The questions you are asking imply you don't understand  how your pension works, or what it's worth. A good IFA will explain all that for you, and if s/he thinks you're already doing a good job will tell you so, and not charge you a penny. However, when it comes to 'cashing in' a pension an IFA does have access to better 'deals' than the general public, so you WILL get more money from them even after charges than you can get by yourself.

The man from the Pru is not an IFA. The man in the Bank branch is not an IFA. The Pensions Advisory Service (PAS) people are not IFA's. Only real IFA's can call themselves IFA's nowadays.

My point regards my Pru pension was that the yearly payout is worthless compared to what I can earn utilizing it in other ways.

We all have different views and options as to what we do and how we structure our lives.  My other pension may remain and run along side my state pension when I am old enough.

In the mean time the money once cashed was more useful to be used to sort out odds and ends.

So in-the future with financial advice, I will invest into various options and utilities, but also have options with fixed term and easy access accounts, like an example I have never had an ISA but found out over the last month that Martin Lewis has mentioned they may reducing the limits, and some one else mentioned its possible to multiple ISA's where i thought you were only allowed 2 , 1 being a stocks and shares.  Another friend has the the max amount in "Ernie" and is lucky enough to make a nice yearly earner from it.

I came into some money many years ago and talked with my brother about putting some of it into Scottish widows, he advised against it, I wish i had ignored him.

But I stay open minded, and any advise is always welcome.

Same with credit cards with the amount of air miles that can be accrued as that can easily exceed 10k miles a month.

We have decided to buy a house as I currently live on my own so as we move in together more space will be required so funding a mortgage may become the next priority but at 64 wont be simple.

.

Can't go wrong with property , we were fortunate enough to receive a quite unexpected windfall about 3 years ago we now both have the maximum in premium bonds and have  done very well from them , we both have ISAs  & we were already mortgage free so had a villa in EL Campello built & as my son in law has his own building business we now purchase & renovate properties, ignore the amateur  "experts" on here and trust your own instincts , just remember if it sounds too good too be true it's probably 'dangle berries', good luck with your financial future.