Pension question - cash in or save until retirement?

[Orang Utan]

Massive general question here but I’m a stupid naive economically-illiterate fool who needs guidance. There are other threads but everyone on them is way more clued up than me to post such an embarrassingly ignorant question amongst all the clever

Are small pensions from previous employers worth hanging onto retirement for if they’re as small as £2K a year, or would it be best cashing in the offered £25K now and using that to save or invest?

I haven’t the foggiest about these things, just not dealt with it by not thinking about it - are pension funds safer than bank accounts?

Would a saving account grow the money faster and turn it into a sum big enough to become a deposit for a property?

I really need to think about it and do something in 2025 - I have no savings but could easily start an account and add a few hundred a month and finally start saving for the first time at the almost too late age of 51.

I have a current PAYE local government pension that I’m still paying into. This pension is from a previous employer who I left in 2011. That and my state pension will be my retirement pension so won’t be touching that.

I’ve only just managed to get an actual statement for my old pension this week after a couple of years of badmin. My fault as well as theirs. But now I have something to work with and make ‘plans’ accordingly

So the £25K is looking more attractive right now than waiting to see what £2k a year will do for me in 2038.
Before ADHD diagnosis, I would have wanted to cash it in and spend it on shirts and cake and weed, but now I see things from a new perspective and want to have a tolerable existence for as long as possible.

Never too late to grow up I suppose- I’ve been wasting my spare money for too long.

Hope it’s not too late. I need something to look forward to and the best I can hope for is not becoming destitute in the next twenty years.

Tell me what to do, please, Urban. And remember I am economically illiterate and may need to be condescended to as if I don’t understand how money works. I don’t, so please do.

 

[moochedit]

I think you have to be 55 before you can cash in a pension. (Not 100% certain about that).

 

[Silas Loom]

Keep the money in your pension as long as possible, as the interest it accrues isn’t taxed, and when you finally do extract it in your dotage, 25% is tax free.

TLDR leave alone until old.

 

[Saul Goodman]

Personally, I'd prefer the income. It might not be much, but the zero you have left from the 25K in 2038 will be even less.

 

[Sue]

Are you sure it's £25k or £2k per year? Just those numbers sound v wrong.

 

[Pickman's model]

Are you sure it's £25k or £2k per year? Just those numbers sound v wrong.

I think it might be £25 in total, but that's a guess based on a hunch based on a suspicion

 

[Pickman's model]

Massive general question here but I’m a stupid naive economically-illiterate fool who needs guidance. There are other threads but everyone on them is way more clued up than me to post such an embarrassingly ignorant question amongst all the clever

Are small pensions from previous employers worth hanging onto retirement for if they’re as small as £2K a year, or would it be best cashing in the offered £25K now and using that to save or invest?

I haven’t the foggiest about these things, just not dealt with it by not thinking about it - are pension funds safer than bank accounts?

Would a saving account grow the money faster and turn it into a sum big enough to become a deposit for a property?

I really need to think about it and do something in 2025 - I have no savings but could easily start an account and add a few hundred a month and finally start saving for the first time at the almost too late age of 51.

I have a current PAYE local government pension that I’m still paying into. This pension is from a previous employer who I left in 2011. That and my state pension will be my retirement pension so won’t be touching that.

I’ve only just managed to get an actual statement for my old pension this week after a couple of years of badmin. My fault as well as theirs. But now I have something to work with and make ‘plans’ accordingly

So the £25K is looking more attractive right now than waiting to see what £2k a year will do for me in 2038.
Before ADHD diagnosis, I would have wanted to cash it in and spend it on shirts and cake and weed, but now I see things from a new perspective and want to have a tolerable existence for as long as possible.

Never too late to grow up I suppose- I’ve been wasting my spare money for too long.

Hope it’s not too late. I need something to look forward to and the best I can hope for is not becoming destitute in the next twenty years.

Tell me what to do, please, Urban. And remember I am economically illiterate and may need to be condescended to as if I don’t understand how money works. I don’t, so please do.

I'd hang on to it. Might not be much but it'll be something.

 

[cupid_stunt]

Cash it in, and invest it in bitcoin.



NB - do not take that advice, leave it where it is, you can always cash it in later.

 

[hash tag]

Q1. Do you need the cash...no....
Q2. How is the pension currently invested.
Q3. Do you leave it where it is or do you move it
Q4 what returns is it currently making
Q5 what are your attitudes to risk
Q6 do you have any preferences for the type of investment
I recently reinvested some cash in an actively managed ethical fund where I believe it will make a better return despite being ethical.

The bottom line is get a projection and go to an independent financial advisor, especially true if you are not entirely sure what you are doing.

 

[Orang Utan]

Are you sure it's £25k or £2k per year? Just those numbers sound v wrong

Told you I was an idiot! My older ex-colleague has cashed theirs in but they are over 55.
Just clicked under the sum on my online account and more details appeared - it’s not a cash in, d’oh, but a transfer value. To another pension fund, presumably. Not my local government one though, I’d imagine. So it’s best where it isn’t it?


Ok, next question - best account to stash £300 or so a month for long term saving?

 

[Silas Loom]

Q1. Do you need the cash...no....
Q2. How is the pension currently invested.
Q3. Do you leave it where it is or do you move it
Q4 what returns is it currently making
Q5 what are your attitudes to risk
Q6 do you have any preferences for the type of investment
I recently reinvested some cash in an actively managed ethical fund where I believe it will make a better return despite being ethical.

The bottom line is get a projection and go to an independent financial advisor, especially true if you are not entirely sure what you are doing.

Not sure IFAs are worthwhile for this level of investment. They are only useful, really, to allow FSPs to cover their arses if you are determined to do something exotic.

 

[Silas Loom]

Told you I was an idiot! My older ex-colleague has cashed theirs in but they are over 55.
Just clicked under the sum on my online account and more details appeared - it’s not a cash in, d’oh, but a transfer value. To another pension fund, presumably. Not my local government one though, I’d imagine. So it’s best where it isn’t it?


Ok, next question - best account to stash £300 or so a month for long term saving?

ISA, unless already maxed. ISA should always come first.

 

[Orang Utan]

Q1. Do you need the cash...no....
Q2. How is the pension currently invested.
Q3. Do you leave it where it is or do you move it
Q4 what returns is it currently making
Q5 what are your attitudes to risk
Q6 do you have any preferences for the type of investment
I recently reinvested some cash in an actively managed ethical fund where I believe it will make a better return despite being ethical.

The bottom line is get a projection and go to an independent financial advisor, especially true if you are not entirely sure what you are doing.

I don’t know enough to even answer those questions, so an advisor will be required for sure!

 

[Sue]

Q1. Do you need the cash...no....
Q2. How is the pension currently invested.
Q3. Do you leave it where it is or do you move it
Q4 what returns is it currently making
Q5 what are your attitudes to risk
Q6 do you have any preferences for the type of investment
I recently reinvested some cash in an actively managed ethical fund where I believe it will make a better return despite being ethical.

The bottom line is get a projection and go to an independent financial advisor, especially true if you are not entirely sure what you are doing.

Tbh an IFA sounds like overkill.

Orang Utan, do you know what kind of pension it is? Is it a final salary aka defined benefit one or a defined contribution one? (The first is way more likely if public sector, the latter is way more likely if private sector.)

 

[Puddy_Tat]

To some extent, it's all a bit of a gamble between you and pension providers how long you're going to live after you retire, and ultimately private sector providers at least aim to make a profit overall...

If the choice is £ 25K now or £ 2K a year when you retire (which is what I think you're saying) then do the sums...

One option that may be possible - can you transfer what's in the old employers' schemes in to the local government scheme?

I did that when I went back in to local authority a year or two ago, and those chunks of pension are now worth about 50% more in (guaranteed) pension income than the (estimated) pension income they would have been worth if i had left them where they were.

Although I think the rule was I had to do this within x months of starting in the LGPS. The rules may vary from one bit of the scheme to another so you may not be able to do this, but may be worth investigating the possibility.

If old schemes are 'defined benefit' (as in linked to final salary or average earnings) they are probably worth leaving alone not cashing in - they may or may not be worth transferring to current scheme.

If old schemes are 'defined contribution' (as in the value can go up or down with the stock market) then they might out-perform other forms of savings, they might not.

You may (again the detail of schemes varies) have the option to put a lump sum or monthly 'additional pension contribution' in to your local government pension, which again gets a guaranteed sum (rather than at the mercy of the stock market) at retirement age. Your scheme's website will probably have a calculator for this.

Beware of financial advisers who will charge you money or be trying to get commission out of selling you something.

Your LGPS scheme's people aren't allowed to give you 'financial advice', they can only tell you what you can get out of the LGPS and what you can do in terms of transfers etc - they can't advise you what to do.

There is a government funded 'pension wise' scheme which looks like it might be a source of advice for people in your sort of situation.

 

[gentlegreen]

Depends on how log you expect to live.
I regret not having even more in my pension fund than I do and will be paying in NI contributions - the return is likely to beat anything I will do with the money and I can earn interest again on the spare income.

 

[hash tag]

Tbh an IFA sounds like overkill.

Orang Utan, do you know what kind of pension it is? Is it a final salary aka defined benefit one or a defined contribution one? (The first is way more likely if public sector, the latter is way more likely if private sector.)

15 years maybe 16 to go to normal retirement age. EG, would you be happy with 2% PA or would you rather 8%.
6% PA on £25000 is £1500 PA net. Compound that. I know where I would look.
Also, would you want a passive fund or an actively managed fund? It's not my choice but hey.

 

[Elpenor]

I am not qualified to give advice, but think it’s worth reading that statement again, given what Sue says

Is £25k the CETV (cash equivalent transfer value)

Keep the money in your pension as long as possible, as the interest it accrues isn’t taxed, and when you finally do extract it in your dotage, 25% is tax free.

TLDR leave alone until old.

Very good advice and if this is a defined benefit it’s even better advice

 

[moochedit]

Cash it in, and invest it in bitcoin.

NO ignore that advice Be sensible and invest it in Hawk Tuah coins

 

[pseudonarcissus]

So the £25K is looking more attractive right now than waiting to see what £2k a year will do for me in 2038.

Probably keep it where it is unless you can transfer it into your gold-plated local government pension to buy extra years.

The £2k/year will be inflation adjusted £2k/year in 2068, long after your £25k has gone.

Save into an ISA next year, say 50% cash ISA and 50% equity, something low cost and diversified like Fidelity Index World Fund

​

 

[Elpenor]

If your current pension is local government Orang Utan you won’t be able to transfer an existing pension in except in the first 12 months of membership.

 

[hash tag]

Probably keep it where it is unless you can transfer it into your gold-plated local government pension to buy extra years.

The £2k/year will be inflation adjusted £2k/year in 2068, long after your £25k has gone.

Save into an ISA next year, say 50% cash ISA and 50% equity, something low cost and diversified like Fidelity Index World Fund

​

Without knowing someone's attitude to risk and type of investment. How much you charging for advice?

 

[Elpenor]

Ok, next question - best account to stash £300 or so a month for long term saving?

Assuming you can spare this money every month…

You should be able to buy additional years in LGPS (go to the website for your LGPS pension fund, details should be also on any annual statement). This is usually via an agreement (eg £300 per month for 5 years effectively buys you some additional few years of pension contributions which means an extra £1000 per year of pension when you retire) and is known as Additional Voluntary Contribution (AVC). This is processed via payroll so you don’t need to do anything except set it up. It’s also free of tax like your regular pension contributions so £300 only costs you £240.

You can also make AVCs where you vary the amount you pay each month but this of course would mean dealing with whoever provides the AVC more often which may not be ideal for you.

Where I work we use prudential for our AVCs (who are not very easy to deal with) but it might be a different provider for other pension funds.

 

[Numbers]

I’m going to be 55 end of March and have already put in motion to draw down the 25% tax free sum from my current employers pension. I have so many ailments which could kill me I’m thinking fuck that I’ma enjoy some money.

If I do die when ‘in service’ Mrs Numbers will be sorted, so fuck it.

 

[Silas Loom]

Without knowing someone's attitude to risk and type of investment. How much you charging for advice?

You’re taking IFA-speak a bit too much to heart, I think. Anything invested in any kind of fund is a gamble. Over the last few years, supposedly lower-risk funds have been burned by overexposure to bonds.

Really, the only thing one can do is take sensible advice on tax planning and accept that financial markets are completely unpredictable. No-one needs an IFA for that.

 

[souljacker]

Orang Utan Have you got any docs from the pension provider? They should be providing statements and projections so you know what it's worth now and in the future. This is all online now obv unless you specifically ask for paper.

As others have said, this will be a transfer value rather than a nice lump sum. You can leave it there or you could try and find a better plan to put it in. This is where an IFA is needed but you could do it yourself. Personally I'd sit on it until I was 55 and have a rethink then.

Cashing it in, buying gold and burying it in your garden is also a valid option.

 

[pseudonarcissus]

Assuming you can spare this money every month…

You should be able to buy additional years in LGPS (go to the website for your LGPS pension fund, details should be also on any annual statement). This is usually via an agreement (eg £300 per month for 5 years effectively buys you some additional few years of pension contributions which means an extra £1000 per year of pension when you retire) and is known as Additional Voluntary Contribution (AVC). This is processed via payroll so you don’t need to do anything except set it up. It’s also free of tax like your regular pension contributions so £300 only costs you £240.

You can also make AVCs where you vary the amount you pay each month but this of course would mean dealing with whoever provides the AVC more often which may not be ideal for you.

Where I work we use prudential for our AVCs (who are not very easy to deal with) but it might be a different provider for other pension funds.

I note what you say about attitude to risk. The real risk is running out of money before you pop your clogs. If you have several years in a LG DB pension, plus a full, or near full, state pension, the risk of this is low.
If a 25k lump sum is tempting, but without a specific sports car/motorcycle/world cruise in mind, building a lump sum via investments is probably best done via an equity ISA that has more flexible withdrawal options than putting more into a pension (obviously it can go up and down etc).
We probably should all have more cash on hand as an emergency fund than we do. Probably a cash ISA is a reasonable way to do this, but any savings account would be OK.

 

[hash tag]

You’re taking IFA-speak a bit too much to heart,

Again, how cautious are you, what is your attitude to risk?

 

[Puddy_Tat]

Assuming you can spare this money every month…

You should be able to buy additional years in LGPS (go to the website for your LGPS pension fund, details should be also on any annual statement). This is usually via an agreement (eg £300 per month for 5 years effectively buys you some additional few years of pension contributions which means an extra £1000 per year of pension when you retire) and is known as Additional Voluntary Contribution (AVC). This is processed via payroll so you don’t need to do anything except set it up. It’s also free of tax like your regular pension contributions so £300 only costs you £240.

You can also make AVCs where you vary the amount you pay each month but this of course would mean dealing with whoever provides the AVC more often which may not be ideal for you.

Where I work we use prudential for our AVCs (who are not very easy to deal with) but it might be a different provider for other pension funds.

umm

additional pension contributions (paying extra so that you get a higher defined benefit pension) and additional voluntary contributions (paying in to a defined contribution scheme) are two different things, and it's not no longer as simple as buying additional years' service.

Paying more :: LGPS

has more, although worth looking at each employer (or group of employers) pension site as the fine details can vary.

(i'm still trying to decide what to do about this - as ever, it would have been better if i'd done it sooner, but the job has never looked quite secure enough to make long term plans round. blargh.)

 

[Silas Loom]

Again, how cautious are you, what is your attitude to risk?

It’s binary. Either you put money in something that pays a guaranteed interest rate or you put it in a managed fund of some sort. If you’ve chosen the risk option, there’s no point in supporting the IFA industry by asking for help in making you feel better about the particular managed fund (and supposed risk level) you have selected.

Risk is much less predictable and quantifiable than the industry pretends, even at massive scale.