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.

Not so. Everything after the 25% TFLS would be taxable, just as his state pension is taxable.

He’ll pay 0% income tax on everything between his state pension and £12570.

He’ll pay 20% income tax on the taxable income between £12570 and £50,270.

He’ll pay 40% tax on any taxable income above £50,270.

As the pension is over £30k, if it is a Defined Contribution pension and he has safeguarded benefits such as having a Guaranteed Annuity Rate then he will likely have no choice about getting the permission of a financial advisor. The lack of flexibility in this pension schem in this regard might explain why he hasn’t taken the pension until now.

If it is a DB pension he has even less likelihood of transferring it in my opinion.

Interest rates were so low in recent years that buying an annuity with the pension may have seemed a ridiculous thing to do despite it perhaps being the only real option without transferring it to a more modern pension.

I’ll answer some of these questions (those I can). I really don’t want to get into the relationship side of things, it’s a very difficult situation and I am going to have to deal with that separately for many reasons it’s not something I want to discuss here.

1. The pension definitely hasn’t been claimed or anything done with it. Part of the reason this has happened is because he ignores anything financial and he has lost the paperwork for most of his accounts and pensions. It was a private sector pension from a well known high street organisation which has its own pension scheme. When the retirement package arrives I will look at it, but the figure it’s worth was on a previous year’s statement.
2. We are not married but we are joint tenants on the mortgage. The mortgage is the only joint financial thing we have, everything else is separate.
3. I have been asking about the status of the endowment policy for many years (which is in his sole name) but he has refused to give me any information until a couple of weeks ago.

We have agreed that speaking to Pensionwise tomorrow is the best way to start and then the bank. My priority is to get the house sorted out at the moment, then I can get everything else organised.

Does he have other pension pots as well - you mention that he has lost the paperwork for his accounts and pensions? I suspect this one you refer to is a defined benefits pension and the advice about the small lump sum and annual pension is correct. But maybe he has paid into other schemes too over the years, which he will also be able to access. Newer schemes do not have the same restrictions and he may be able to draw more by way of a lump sum even if part-taxable. I hope you manage to sort everything- it sounds quite stressful.

You also need real clarity on the outstanding mortgage and the maturity value of the endowment policy.

Is the £50k the ‘cash’ value of a DC pension or is it a CETV for a DB pension that gives a defined montly income.
For the former you can simply transfer it as cash into a Sipp and use it however you want - a £50k lump would give £12500 tax free, depending on his State pension amount, the remaining £37500 taxed at 20%.
If the latter then you are stuck - anything over £30k needs expensive advice and if the advice is ‘NO’ then there is nothing you can do.