Difficulty with lump sum from pension

[WingsofRain]

This is a complicated situation, so apologies that there may be information missing.

My partner has recently told me that there is a large shortfall on our endowment policy that is supposed to pay out later this year.

He is well past retirement age and has a pension which would pay off the shortfall and avoid us being made homeless, but the pension provider has told him he is not allowed to withdraw the money.

From my reading around it looks to me as if that isn’t true, but so far he has not managed to get any independent financial advice despite telling me he has tried.

Does anyone here know why out of nearly £50k, the pension holder is saying that if he asks for a lump sum he will only get 8k and lose the rest?

It makes no sense to me and I think the person at the pension provider misunderstood that he is past retirement age. I realise that he would have to pay tax on it if he was able to withdraw it.

How far past pension age is he ? And has he been receiving a monthly sum from this pension?

He is 70 and he hasn’t been receiving anything, he has just ignored it until now.

It would apparently only pay out about £1k a year so is much more helpful as a lump sum in our current situation.

I recently withdrew my entire private pension (younger than your husband) because it wouldn't provide a decent income as a pension. Called the company, confirmed my date of birth and had to fill in forms to say I'd had financial advice to say it was sensible for me to withdraw the money and 2 weeks later it hit my account. I then received a P45 and sent those details to HMRC and got most of the tax back (it was taxed at 20%, 40% and 45%!!!!!)

You might get useful help from these people: https://maps.org.uk/en#

Does he have an online portal that you can check the amounts etc, they might have a chat box that you can ask any questions you may have.

I am not a Pension Advisor and this is only what I think!

I would ask what the 'Transfer Value' would be if he were to transfer it into a Self Invested Personal Pension (SIPP). just to establish its value.

If it is a Defined Benefit pension the provider can to some degree decide on the value.

If it is a Defined Contribution then his payments (plus interest) should decide the value.

I think you can take 25% of the value 'tax free' the remainder would be taxed, possibly at around 40%.

I would stress that this may be incorrect and you should to find professional advice.

Maybe start here...
https://www.gov.uk/government/organisations/the-pensions-advisory-service

Thank you everyone, I was pretty sure the person he spoke to was wrong - what would be the point of saving all that money just to be told you can’t have it?

I also have several smaller pensions which I could claim on, but I’m much younger and nowhere near retirement so it’s hugely more complicated.

We definitely need proper advice, but actually getting it seems very difficult.

I think he needs to speak to them again- sounds like some miscommunication somewhere.

You could try moneyhelper.org - it's a free and impartial financial advice site set up by the government for questions just like this.

For some pensions you have to have permission from a financial advisor.

Some old pensions, even DC pensions, would have to be transferred to a more modern pension perhaps even with a different provider to alter the terms, i.e. to not take an annuity.

For example it might be an old pension with a Guaranteed Annuity Rate of 16% or have other protected benefits that it might not be sensible to give up if you transfer.

So your first port of call should be to find out in writing what your options are with the current pension provider (ask for a retirement pack) and then speak to PensionWise, and then after that you might have to get a Financial Adviser involved - but be warned a Financial Adviser might charge £3k to £5k to decide if you can take the money out or not - and he might think it’s not in your best interests.

It’s not true that for all pensions, especially old ones, that you can take 25% without sign-off from a financial adviser.

I think this is true however after taking the 25 percent tax free sum your DH would pay tax at whatever rate would fall due so maybe only 20 percent.

Op, do you know what type of pension it is? Or can you say who it is with?

Yes, but one must add in the State Pension that he will be receiving.

It’s a private occupational pension that he got through an employer he worked for quite some years ago.

I don’t know much more about it than that, his lack of transparency about finances is what has created this difficult situation and I’m just trying to sort things out so I don’t lose my home as a result.

We definitely don’t have £5k (or even £3k) to spend on financial advice, he has no income bar state pension and I am on a low wage as I am only able to work part time.

He could draw down 25 percent tax free. Then he'll pay 20 percent tax of difference between his state pension and £12500. Then 40 percent of anything he draws above that.

I should clarify we aren’t bothered about what tax might be payable on it, all the tax that needs to be paid, we will pay.

The part I can’t understand is that he has saved £50k which would cover the shortfall on the endowment policy and he has been told he is only allowed to withdraw £8k which is completely useless in this situation.

The company say that his only other option is to take around £1000 a year, which is pointless and not of any use to us in our current situation.

I suspect it might be a "defined benefit" pension scheme, in which case there generally are two ways to access the lump sum - either taking a lump sum from the scheme, and taking a reduced ongoing pension - the lump sum will be calculated using scheme factors - this could be the £8k you were quoted. Alternatively, you could transfer the whole pension out where 25% would be tax free, but you would need to take financial advice for the administrator to facilitate this. This is generally expensive.

But, it's difficult to give proper help without knowing all of the details of the pension and I don't think anyone on the internet can really advise you.

I'd recommend asking the administrator for a retirement pack and a transfer value pack - this will give you all the options and details you need, then phone the government's Money Helper website - they will be able to give you unbiased guidance on what to do next.

If it's a defined contribution pension he can book a free pension wise appointment.

Thank you, I’m going to have to try to get him to do this.
We don’t have much time to come up with the money as the endowment matures in October.

Op even if your endowment matures in October you can use whatever value it has to reduce your mortgage and I'm sure your lender would allow you to continue the remainder on an interest only basis until you manage to sort out the pension payment. You shouldn't need to worry about repossession (I used to work for a building society).

Also once you have all of the information about your husbands pension you can book a free call with Pension Wise which is the government service and designed to help you. I hope that this is a little bit reassuring for you,

There is free government organisation - PensionWise - you can book an appointment f0r free information and advice .

If he is 70, and only in receipt of state pension, and you are a low earner, why hasn't he been claiming this pension?

Is there a possibility that he isn't being entirely truthful and and something along the lines of only £8k is left now to take as part of the 25% lump sum because it has already been accessed (and the rest will be subject to tax) or just £8k left all again because it has been spent?

Sorry to be negative and making accusations but have you seen the paperwork related to the pension and endowment. I'd recommend looking at those and just doing some general googling on the exact pensions scheme as there may be some odd rule with that particular pension which will explain it.

I think it sounds like a defined benefit pension where you can get a lump sum and an annual payout. You can ask to get more as a lump sum and less of an annual payment or the other way round but there are limits on how much you can vary it. Where has the £50000 figure come from? Did the pension company provide this?

Is there a possibility that he isn't being entirely truthful and and something along the lines of only £8k is left now to take as part of the 25% lump sum because it has already been accessed (and the rest will be subject to tax) or just £8k left all again because it has been spent?

I wondered that as well - it certainly won't have suddenly come about that the endowment won't be enough. He'll have had years of notice of this. Is the house and mortgage in your name as well?

Did he work in the public sector? Likely to be a defined benefit scheme if so - but they don't generally have a value as such so unsure where the £50k comes from - so maybe it's a defined contribution from a private sector employer?

I think that, unfortunately, you have several problems.

You refer to your partner - are you not married? If not, do you at least own your property as joint tenants, are you named as beneficiary on pensions/life assurance, and do you have wills?

You say he is not transparent regarding financial matters and doesn't engage with finances. That's a huge problem, especially since he is retired and you a re a low earner.

The endowment shortfall is not a sudden event. The company will have provided him with yearly statements and updates, therefore this should not have come as a surprise so late in the day.

Regarding the pension, you need him to show you the paperwork. First and foremost: is it a defined contributions or a defined benefit pension? The latter are quite rare these days. Also, where does the £50000 valuation come from? Has he already taken the tax free lump sum that he would have been entitled to? Once you have this information, get him to make a PensionWise appointment.