Cashing in Defined Benefit Pension

[VeganBart]

OK you have probably heard you can cash in a pension in full at the age of 55?

Well that might be true in theory, in practice I'm finding it impossible.

Here's my problem. I have recently turned 55 and wish to cash in two small pensions that I have in full. The schemes I'm in only allow me to take 25% in cash so I have to first transfer them into another pension, this is easier said than done.

Because they are defined benefit pensions the FCA have this rule that before you can transfer out you must take advice from an IFA.

Now you may think it's not a wise move to cash in but here's the thing, I'm a big boy capable of making grown up decisions and it's my money but I have to take very expensive advice that I don't want or need and even then I can't get an IFA to play ball.

Has anyone managed to find a work around?

Incedently the advice doesn't even have to be positive but finding an IFA who will sign the forms to say they have given negative advice is proving impossible.

 

[Sue]

VeganBart, there's a lot of discussipn on Pensions, Annuities & Retirement Planning that you might find helpful.

 

[VeganBart]

Thanks Sue.

I already posted there but seems to be mostly straight financial adviser types, was hoping to get more down to earth, work around and find loopholes type advice here.

 

[Sue]

I think the advice on there is generally pretty good (and you're likely to get more responses there than here!) It could be there aren't any loopholes (or none that are worth going for anyway) as what you're proposing to do is a bad idea....

 

[alex_]

Thanks Sue.

I already posted there but seems to be mostly straight financial adviser types, was hoping to get more down to earth, work around and find loopholes type advice here.

unless you are planning to die very soon - what you are doing is likely to be a very bad idea.

The reason you arent finding anyone to sign this off is that they all think it’s a bad idea, and none of them want to be responsible for it.

Alex

 

[VeganBart]

unless you are planning to die very soon - what you are doing is likely to be a very bad idea.

The reason you arent finding anyone to sign this off is that they all think it’s a bad idea, and none of them want to be responsible for it.

Alex

My point it really shouldn't matter if they, you, and everyone else thinks that it's a bad idea, it's my money and I should be allowed to do whatever I want with it.

 

[B.I.G]

My point it really shouldn't matter if they, you, and everyone else thinks that it's a bad idea, it's my money and I should be allowed to do whatever I want with it.

Very expensive advice? Just pay the £1000 or whatever it will be. Its just more wasted money you are adding what you are already giving up.

 

[VeganBart]

If only it was that simple, I cant find anyone that is prepared to sign the forms to say that they advise against transfer.

 

[B.I.G]

If only it was that simple, I cant find anyone that is prepared to sign the forms to say that they advise against transfer.

I googled it and found some that seemed to specialise in it. Plus something from last year that seemed to indicate they got paid on transfer so they were inclined to do it

 

[B.I.G]

I googled it and found some that seemed to specialise in it. Plus something from last year that seemed to indicate they got paid on transfer so they were inclined to do it

This change to have screwed youhttps://www.ftadviser.com/pensions/2020/01/20/pi-cover-forces-30-firms-to-exit-db-transfer-market/

 

[Proper Tidy]

OK you have probably heard you can cash in a pension in full at the age of 55?

Well that might be true in theory, in practice I'm finding it impossible.

Here's my problem. I have recently turned 55 and wish to cash in two small pensions that I have in full. The schemes I'm in only allow me to take 25% in cash so I have to first transfer them into another pension, this is easier said than done.

Because they are defined benefit pensions the FCA have this rule that before you can transfer out you must take advice from an IFA.

Now you may think it's not a wise move to cash in but here's the thing, I'm a big boy capable of making grown up decisions and it's my money but I have to take very expensive advice that I don't want or need and even then I can't get an IFA to play ball.

Has anyone managed to find a work around?

Incedently the advice doesn't even have to be positive but finding an IFA who will sign the forms to say they have given negative advice is proving impossible.

If it is over 30k then you have to take advice, and that will cost a lot. Its for good reason though, because by transferring you are losing guaranteed income for life and taking on risk.

There is no way around it. If the advice is to transfer then the fee will be taken out of the pension when it's transferred. For a transfer to be recommended, they will be looking for evidence that you don't really need the guaranteed income, for example that you have enough in other income to meet your needs in retirement. If you don't and you are actually reliant on these pensions then the advice should be to leave them alone.

Even when you transfer from defined benefit to defined contribution, you will still only be able to take 25% tax free, the rest will be taxable at the highest rate of income tax you pay. If your plan is to take the whole lot in one go then there is a good chance that will be 40%, so you'll be swapping guaranteed income for life for a lump sum now with a fuckload of tax to pay on it.

Tbh if I were you I'd be thinking about whether you do actually want to do this.

 

[Proper Tidy]

(and it is and isn't your money - a big chunk of it is HMRCs money really which is why they can place lots of restrictions on when you can take it and how you can take it)

 

[Puddy_Tat]

i'm a few years off even having the option to draw on a pension, but the other strand to this - what's the deal if you do cash in a pension, then at a later stage try and claim any means tested benefits (housing benefit, pension credit and so on)? do they work as if you've still got it? (i know they can if you have more than a threshold figure in savings and are considered to have 'intentionally deprived yourself' of it - it's a long time since i've done benefits work)

i guess it depends on the amount involved - if it's a fairly small amount then is the lump sum worth the effort? if it's a decent amount of pension, i'd question whether it's a good idea.

(I'm not any sort of financial adviser)

mum-tat had an pension from a brief spell as a clerk at the gas board some time in the 60s, back when you couldn't opt out of pensions, and there wasn't an inflation clause in it, so it would have come to about five quid a year. they let her have a lump sum when she turned 60 (can't remember if it even ran in to three figures)

 

[Proper Tidy]

i'm a few years off even having the option to draw on a pension, but the other strand to this - what's the deal if you do cash in a pension, then at a later stage try and claim any means tested benefits (housing benefit, pension credit and so on)? do they work as if you've still got it? (i know they can if you have more than a threshold figure in savings and are considered to have 'intentionally deprived yourself' of it - it's a long time since i've done benefits work)

i guess it depends on the amount involved - if it's a fairly small amount then is the lump sum worth the effort? if it's a decent amount of pension, i'd question whether it's a good idea.

(I'm not any sort of financial adviser)

mum-tat had an pension from a brief spell as a clerk at the gas board some time in the 60s, back when you couldn't opt out of pensions, and there wasn't an inflation clause in it, so it would have come to about five quid a year. they let her have a lump sum when she turned 60 (can't remember if it even ran in to three figures)

Once you've taken any lump sums and spent them then they aren't counted towards means testing (because you've spent them already) but you can only take 25% tax free and the rest is taxable so just have to balance up what works best for you. Only exception to this is if its deemed intentional asset deprivation - more relevant to eg people signing the house over shortly before needing local authority funding for long term care but I suppose it could be applied to whazzing through a pension pot in six months so you can claim pension credit later on. Pension credit only tops up state pension to a base level anyway so if you have already paid enough stamp to get a full pension then you won't get it anyway (there used to be a different type of pension credit to reward you for saving a bit towards retirement but that's gone for anybody not yet retired now).

It's easier to take a pension as a lump sum if its a smaller pension (<30k) although since osborne fucked around with all the rules it's possible to take any pension as a lump sum, tax treatment is the same (25% tax free 75% taxable).

 

[mx wcfc]

I did 3 years in the civil service - finished in 1989. I have a defined benefits pension from that, but it's probably only around £1k a year (if that). I'm over 55 now - what's the point in not cashing it in? I wouldn't want to hit 40% tax on any of the payout, but apart from that? An IFA's fee to sign it off would take a high %age out of it. There must be a de minimis? (I'm not in a hurry to cash it, I'd just like to know my options - it seems daft being restrictive when it's such a pittance)

 

[Proper Tidy]

I did 3 years in the civil service - finished in 1989. I have a defined benefits pension from that, but it's probably only around £1k a year (if that). I'm over 55 now - what's the point in not cashing it in? I wouldn't want to hit 40% tax on any of the payout, but apart from that? An IFA's fee to sign it off would take a high %age out of it. There must be a de minimis? (I'm not in a hurry to cash it, I'd just like to know my options - it seems daft being restrictive when it's such a pittance)

Ask for a transfer value. If the value calculated by the actuaries is under 30k then you can do what you want with it.

Edit - actually you might not even be able to - central govt defined benefit pensions are unfunded (as they are paid out of central revenue) so you can't transfer them full stop, so stands to reason you couldn't lump sum it either even if its under 30k. You could just ask civil service pensions though, they'll tell you.

 

[alex_]

My point it really shouldn't matter if they, you, and everyone else thinks that it's a bad idea, it's my money and I should be allowed to do whatever I want with it.

This is happening, because if it turns out to be bad advice - you can sue the financial advisor for mis-selling.

Thousands of people have been ripped off in your situation.

It’s not a surprise no one wants to sign this off.

alex

 

[VeganBart]

I understand why, I'm just miffed at a law that prevents me getting my hands on my own money.

 

[alex_]

I understand why, I'm just miffed at a law that prevents me getting my hands on my own money.

a lot of others want to get their hands on it too

 

[strung out]

I understand why, I'm just miffed at a law that prevents me getting my hands on my own money.

With the greatest respect though, it's not your money.

Defined Contribution pensions are your money, giving you the choice to invest in whatever you want, within the wrapper of a tax advantaged pension.

Defined Benefit pensions are essentially a membership scheme, where you pay a percentage of your salary in return for a promise to pay you a set income in retirement. Yes, there is a monetary transfer value attached to this, in order to calculate things like lifetime allowance, lump sum payments etc, but in no way is there any pot of money that is 'yours'. It's made so difficult to cash out pensions like this both because it's a bad idea for you financially, and also because the effect of doing this easily for anyone would be detrimental to the future of the scheme.

Having said all of that, you might find advice on how to do this from Reddit UK Personal Finance, where this question comes up semi regularly. You will probably get a similar response to here though!

 

[VeganBart]

Ain't that the truth

 

[VeganBart]

a lot of others want to get their hands on it too

Ain't that the truth

 

[Idaho]

The best you'll be able to do is start taking the pension as a pension - weekly/monthly payouts. You might be able to borrow money on the basis of this income.