Lump sum or monthly pension payment?

[Beemer]

As I near the end of work due to early retirement due to illness, I wonder if there is any financial benefit to taking the private pension as a lump sum or not?
I am aware that a lump sum may affect any benefit I or my wife may be allowed.

[Heather R]

There is a guide to taking your pension in moneysaving expert.com, I don't know if that would be useful? A bit complicated situation though I guess you are in, CAB? x

[Barry52]

Hi Dave,

Please be aware that I am not a financial advisor but I do take advice on the best way to shelter assets from hmrc. Your pension as you are aware is exempt from tax on the first 25% of value. Anything above that is taxed at your income rate i.e. 20% or 40%.
The decision depends on what you and your wife want to achieve during your lifetime. I know we have spoken before about the benefits for your wife should you leave the pension intact but you could consider transferring to your own SIPP (self invested personal pension). Be aware that there are lots of scams out there so choose your advisor carefully.

If you choose to go down the SIPP route then ask your advisor about asset preservation which will benefit your wife and children.

[matthew55]

If you have a ds1500 and a sympathetic gp you may be entitled to the whole pot tax free. Then look into other investments. 😉

[Shaun]

Hi,
my advice is get proper advice from a bona fide source.
There are so many pension options available including deferred payments , and Barry’s suggestion, even partial its not just monthly payout or one big lump sump,

a couple of sources for you:

https://www.pensionwise.gov.uk/en

https://www.moneyadviceservice.org.uk/en/articles/taking-small-cash-sums-from-your-pension-pot

https://www.moneyadviceservice.org.uk/en/articles/choosing-a-financial-adviser?_ga=2.92618013.1014638411.1617574919-1542378365.1617574919#how-to-find-a-financial-adviser

I don’t know what your personal circumstances are, but you do need to work out what you are hoping to achieve, and some of that decision will be based on how long you have and what gives you and you wife the greatest benefit

you mention benefits and savings as you are taking early retirement you will be entitled to ESA, however the savings limit for that is £6000, so any over that will reduce that benefit
take a look at:

https://www.moneyadviceservice.org.uk/en/articles/how-do-savings-and-lump-sum-pay-outs-affect-benefits

its quite useful to work out what means tested benefits will be effected.

From my personal circumstances, I have several pensions, so I’m drawing down the small ones, to give me ‘enjoy it while I can money’ and keeping the decent ones for my wife to have.

Time to get the calculator out I’m afraid...
shaun

[denise]

my husband had all his bits of pensions put into one with prudential. cant complain it did rather well until we wanted to use it. we thought we would take some out and leave the rest. so we asked nicely. can we have our money? we got a brochure. we asked again. another brochure. this went on for sometime and my daughter sending them out from the UK was getting rather *issed off. so my husband phoned up and more paperwork. they must have spent a fortune on postage. so he phoned again and they nicely told him that if he waited until after he was dead (not sure how you claim once dead but that's another matter) he would then have more money for his family. ok at this point i was spitting feathers and i let them know what i thought. how could they say that to someone making them feel guilty that they wanted what was theirs? anyway it worked we got a nice letter of apology and we decided we would have the lot because no way would we go through that again. when i think prudential have been used by my family since well i recall the man from the pru calling at my nans house in the 1960s and im pretty sure he had been calling long before then. i dont think we would have thought to use anyone else. shame really as my mum used them forever and so did I. how things have changed. they worry that you will use it unwisely so they just dont let you have it in the first place.

[Beemer]

Thanks all for your advice. Some heavy reading to be done then, if I understand it.

[Shaun]

Hi, if you do decide to cash in and you haven’t already moved them around or combined into a single pot, the drawdown process in my experience was very simple and speedy, did it online and money was in my bank within 5 days, it does become more difficult if you taken the option to already assign and re-invest.
ask for transfer values , if it’s not provided on your yearly statements, you may find that taking the 25% tax free may give you enough cash to do what you need to do with it without doing to much damage to your pot.
and make sure your wife is listed as beneficiary on your pensions or even your children

[David R]

As we have a terminal illness you are entitled with a letter from your consultant or GP to claim the whole pot tax free, I tried to do that when diagnosed but unfortunately what I didn't know was because I'd moved it into a draw down fund a few months before which they call crystallised I couldn't take it tax free, I was very frustrated but then found out once I die my wife can take it tax free for up to two years from my death so, we've decided to leave it if we can and only do a draw from the pot if and when we need it. Glad I went for the draw down though and not the annuity which finishes as soon as I go and the pot would have been lost!

[lindylou1422]

Asking for my son in law who has mnd and daughter - so very helpful here. My son-in-law is struggling to keep working, because he wants to work but
also because they have very little savings and a fairly big mortgage. They have spent the last w years, since diagnosis, overpaying the considerable mortgage with the top rated PIP he gets. My daughter was made redundant with the Covid situ in July and recently got a job (she tried every day, it was a miracle but lower paid. We cannot get an answer to this question. If he takes out his private pension of £65000 to pay directly into the mortgage, will they be 'accused' of disposing of savings to claim any benefit , including care - when he can no longer work, which looks like fairly imminent? If the pension is classed as savings and they have to pay for care and pay the mortgage, it will soon run out and then whether he is still here or not, the mortgage will not be able to be paid? I have made several calls to find out and nobody within Universal Credit, or Entitledto - seem to have a definitive answer? Is there one or somewhere to go who will be able to put their minds at rest? Thanks

[PeterPan]

Asking for my son in law who has mnd and daughter - so very helpful here. My son-in-law is struggling to keep working, because he wants to work but
also because they have very little savings and a fairly big mortgage. They have spent the last w years, since diagnosis, overpaying the considerable mortgage with the top rated PIP he gets. My daughter was made redundant with the Covid situ in July and recently got a job (she tried every day, it was a miracle but lower paid. We cannot get an answer to this question. If he takes out his private pension of £65000 to pay directly into the mortgage, will they be 'accused' of disposing of savings to claim any benefit , including care - when he can no longer work, which looks like fairly imminent? If the pension is classed as savings and they have to pay for care and pay the mortgage, it will soon run out and then whether he is still here or not, the mortgage will not be able to be paid? I have made several calls to find out and nobody within Universal Credit, or Entitledto - seem to have a definitive answer? Is there one or somewhere to go who will be able to put their minds at rest? Thanks

The rules around ‘deprivation of capital’ are very complicated with respect to pension savings. Suggest you call your local Citizens Advice Service. If they can’t give you an answer, ask for the questIon to be referred to the expert advice team. The worst thing is not knowing where you stand and hope you get an answer soon.

[Shaun]

Asking for my son in law who has mnd and daughter - so very helpful here. My son-in-law is struggling to keep working, because he wants to work but
also because they have very little savings and a fairly big mortgage. Thanks

Hello Lindylou
as Peter states it is very complicated and speak with CA or the DWP,
but have found this for you, not what you you were hoping to read I’m afraid,

https://www.gov.uk/government/publications/pension-freedoms-and-dwp-benefits/pension-freedoms-and-dwp-benefits

scroll down to section on deprivation rule
Its down to the interpretation of this and has you son done this gain benefits

The argument would be that at the time you did not expect to have to claim benefits in the future.

Another site to look at

https://www.moneyadviceservice.org.uk/en/articles/how-do-savings-and-lump-sum-pay-outs-affect-benefits#will-my-redundancy-pay-or-other-lump-sum-payment-affect-my-benefits

Regarding care funding ask your son to ask his MDT about CHC funding ( not means tested)

https://www.mndassociation.org/app/uploads/2015/06/10D-NHS-Continuing-Healthcare.pdf

If they have a large mortgage they do have life assurance?, these can pay out early, just need consultant to agree less than 12months expectancy

Please get professional advice
s

[lindylou1422]

thanks for helpful responses. Thanks Peter for all the Links. CA and Universal Credit Advice lines are unable to answer the question - they are all empathic to the dilemna but so far the best they have said is wait til you have to claim and ask your Case Worker....of course it will be too late to do anything by then (
I am waiting for a call from MND advice line in the next few days, I will post when I have an answer that may help others. Unfortunately my son-in-law did not take out a policy to cover the outstanding mortgage - so if the pension has to be used for living (as savings) once used they wont be able to pay the mortgage, as Universal Credit only help those in rental or social housing and on benefits. Same applies for help with wet rooms etc - so if they have to pay for those things out of the pension - dont know how they will survive after that. SMI ie a Govt loan to help with interest on a mortgage is outrageous - charging above the rate of the bank of england rate! As one person said when she didnt have an answer, they're between a rock and a hard place but I am in fight mode - if there is any way to fight it

[richard]

Firstly and most importantly I am not a financial advisor. My view is that if you use £50,000 of your pension to repay your mortgage you have effectively increased the equity in your property by that amount so the value of your net finacial estate is the same. No one has been deprived.

Richard