Cash in small pension now?

[gokartdillydilly]

I've recently turned 55. I have a £9,000 pension pot that will result in me earning a pittance from it when I retire. I feel that I would benefit from cashing in the whole pension now and using the money to pay off debts, have a treat or two, upgrade my old banger, and bung the rest into an ISA.
I'll get the 25% tax free, and the other 75% will be taxed at the usual rate (it won't take me into the higher salary bracket).
Bearing in mind I stand to make a substantial inheritance in the next few years (a long story), am I better off taking the money now and enjoying it while I'm young enough to? Paying off my (small, but costly in terms of interest) debt will mean I'll have more to live on each week. To me it seems pointless keeping a paltry pension. But is it?

Bearing in mind that inheritance isn't guaranteed, how will you support yourself when you retire if you cash in your pension now?

You need proper financial advice. Speak to pensionwise to organise a preliminary meeting. If you take your pension it limits what you can save into a pension if you're still working or want to put your inheritance into a pension for tax or inheritance readiness. It's a nontrivial question when if the pension itself is small.

Are you intending to keep working?
Either way I wouldn’t be frittering it away on an updated car and treats! Servicing your debt probably makes sense, do the maths. Then put all the rest into the best investment you can, up to you to set return vs risk but it must be more return that you’d have gotten by leaving it in the pension.

I have a slightly larger pension - about 11k which will give me the princely sum of £450 a year when I am 65. I will never add to this pot.

I am 55 next year and plan to cash it in. My roof needs attention, my bathroom is 20 years old, the garden wall is collapsing. I think cashing it in and investing the money in house maintenance rather than worry about how I would pay for this when I have retired and it becomes urgent work is preferable to an extra £30 a month in 11 years.

I don't have any significant inheritances to come but I do have a civil service pension which will be sufficient to live on.

@Bluebell9 I should have explained, a large portion of the inheritance is held in a Trust, and is very substantial, and so it is guaranteed. It sounds horrible to write it out in print, but the date of receipt of said inheritance is dependent on the demise of my very aged parent (who could - and I hope does - go on for at least another decade).

@youmeandconchitawurst Thank you. Yes, I think I do. It's obviously more complex than I think it is. So thanks for your advice x

Ok, guaranteed inheritance changes my response!

@Ted27 I am inclined to agree with you. A paltry sum in 12 years time just seems ridiculous to me when it could be put to much better use now.

'@auntiepatricia' I know! My other (late) parent made some very very astute business decisions and decided for whatever reason to not make a will, Who knows why that could have been, but it does mean that it is ring-fenced so that the government can't get their hands on it if surviving parent needs long term care.

Is this your only pension provision? Are you working (I assume so, hence your comment about not taking you into the higher tax band)?

How secure is your job? What are the debts?

Where is the pension invested?

How guaranteed is this inheritance, and how sure are you of the date?

@VanGoghsDog Thanks for your input and your questions. I'm going to take ConchitaWurst's advice and speak to someone in person armed with all the answers you have put to me.

Thank you all for your input!

Yes, sorry, other responses overlapped me!

@Ted27 - not sure you can take £11k as cash, the small pots exemption is capped at £10k per pot, max 3 pots. (no idea if you can split it out now to meet the exemption!)

www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/the-right-choice-for-me/taking-a-small-pension-as-a-cash-lump-sum

(I will be planning to have 3x small pots of £10k when I am 55 so I can commute them easily, as well my main pension.)

yes you are right @vangoghsdog. I think there is a way to draw down as you need it. As I'll be using if for house maintenance I'll take it as I need it - no way all that work will be done at once, and I wouldn't want money sitting in account shouting spend me on a holiday !

Yes, you can take the 25% tax free and then have flexible draw down for the rest.

Annoying for such a small amount though (though also good call re the temptation).

Yes, you can take the 25% tax free and then have flexible draw down for the rest

Well yes legally correct, but good luck finding a provider that will let you. They usually have minimum starting funds closer to £50k. They won’t support pots less than 10k.
There was just one provider that would take it when I recently checked for a client at CAB and they had to invest it in funds, no cash holding so it could easily go down substantially.

They won’t support pots less than 10k.

The pot we were discussing is more than £10k.

After you make withdrawals it won’t be. They make you take the last payment to ensure >£10k. You can’t use it like a cash machine and take what you want. Providers have minimums and rules many of which relate to how much you have to leave in an account to keep it open. The lowest I’ve found is £5k left after withdrawals. You will find that once taking the 25% tax free that small pots won’t meet the requirements.
They are commercial companies and the cost of serving these accounts makes it unprofitable.

£5k having started at over £50k

Lots of existing pensions won’t even allow Flexible Access Drawdown as the contract was never set up to provide this. It’s lump sum withdrawal or nothing.

You're right, but surely you just transfer it to a SIPP before you start the flexible drawdown?

Do you know what Vangohsdog I must apologise, the advised products would be out but actually I think you can drop in minimums with AJ Bell Youinvest. These don’t come up on our searches and really that’s not good.
I will stick to the areas I know

I actually use AJBell for my SIPP, they seem fairly good.

I couldn’t find any minimum or even a base charge. Much better than Hargreaves.

This is what I use to compare costs:

monevator.com/compare-uk-cheapest-online-brokers/