Pensions! In a nutshell?!

[Toastandmarmite999]

Forgive my ignorance, I just don't understand how they work.
I contributed into two schemes for a few years and now I'm almost 55, I'd like to take the money out to use now.
I seem to have 6K in both schemes - can I draw it out now?
Why would this be a bad idea? That money isn't going to increase is it as I'm no longer paying into either?

Pensions will grow as the underlying assets increase in value so even if there are no contributions going in, the pot still grows - aside from market crashes!

Money Saving Expert / Martin Lewis is a good place you look for info on drawing down your pension.

75% will be taxable at your marginal rates. Do you have retirement provisions?

sorry - what are marginal rates?
No - I'm relying on downsizing and the state pension.

hmmm....I think the 6K I'm looking at is the amount it will be when I retire in 765575 years then.

oh how disappointing!

Do you know what sort of scheme they are?
What sort of organisation was it with?
Whatever type they are, they are still growing if left untouched.

Marginal tax is your highest tax rate.

Have you checked on gov.uk your state pension entitlement and whether you need to pay more to be entitled at 67? You will have a personalised projection on there.

I know it sounds obvious/ silly but generally it is not advisable to take pension money out whilst you are still earning, you are 'stealing' from your future self and will have a lower standard of living in retirement if you don't have anything other than SP then.

....one was with the BBC, the other with NEST.
From what I can see, because I only paid in for a couple of years, the annual payment from both will be just over 1K, so I don't think it would make much difference to my future self, if I lost this?
However, it would be life changing to have 12K now....but I can't work out if that's the predicted amount in 2037 when I retire, or if that's what's available now....
I think you can withdraw 25% tax free. Do you know if that's annually? Bit by bit?

I think you can withdraw 25% tax free. Do you know if that's annually? Bit by bit?

No, it's a one off. If you are working, the rest will be taxed as and when you take it.

Do you qualify for state pension OP?

I have been learning a lot lately about pensions, as I can take mine now. What years did you work for these companies? You should be able to log into your pensions and get figures for taking it now and projected figures for future dates. If it's a DB pension, it will pay out for life. If it's a DC pension you have a finite pot, so you'd only have that £1k p/a for 6 years. Have you logged in and played with the figures?

And where are you getting the £6k figure from? If that's the lump sum you can take, then the total value is likely £24k.

yes - but not until 2037

The transfer value is 25K
My retirement pot with the NEST one is 6K, but the BBC sounds too good to be true, the statement is saying a 6K tax free lump sum and then a reduced annual payment (of peanuts) if I take it early - this year....
I've asked them to send me a pack....

...I just don't see how it can be as much as 6K when I only paid in for 3 years!

You could get that from a £20k pa job - depends on the contributions

But if you worked there decades ago, it's been growing ever since.....

Is it DB or DC? What's the annual pension?

Actually it's comparable to mine. I'm 55. My transfer out value is about £270k, for 27 years service. So, about £10k for every year worked. So for you, 3 years = £30k - you're saying it's £25k - about right then?

You really need to work out if each are a DB or DC pension.

A DB is a promise to pay a certain amount for life. You would normally get this sort by working for the public sect, or private sector in very large companies 30+ years ago. BBC had a DB scheme so you might well have this. It's almost always a good deal and worth leaving alone. It will carry on going up with inflation forever so is definitely worthwhile hanging on to. If you are living on SP alone, an extra £1k per year, index linked is worth having. These schemes do come with a tax free lump sum but you only get that when the pension starts payment and the rules vary from scheme to scheme how much it is, some of them are very poor value for money and you are better not taking it, but not always.

Your NEST pension is likely to be a DC scheme, i.e. A pot of money you have saved that is invested in the stock market and will be growing each year. You can start drawing from 55 if you are 54 now. You can have the first 25% tax free, or 25% of each drawing tax free (the latter tends to work out better for most, though many don't do this!). You will pay income tax on anything you draw above the 25%.

DB = defined benefit (very good, less common now). Sometimes known as final salary pensions.
DC = defined contributions, a money pot that you & your employer have paid into. You can usually take this as payments (drawdown) with 25% being tax free at 55, although it is going up to 57 I think. You can also buy an annuity which would pay you a fixed sum (sometimes a variable sum) for life.

You can withdraw a total of 25% of your pension tax free. Some people take 25% of the whole pension as a lump sum and have that amount tax free and then pay tax on the remainder as they draw it down.

Others do not take a lump sum but each draw down then had a 25% tax free element.

You can call the free government pension advisory line and get help.

Thanks for all your amazing advice. I am going to transfer my NEST over into my BBC one as that seems like a logical thing to do right now while I decide what to do.

Is that an option?
If the BBC one is an old DB scheme and you aren't working there any more, it's not likely it would accept a transfer in of a DC pension.

oh...I was going to withdraw the NEST money and add it to the BBC pot - is that not an option?

The BBC pension is likely a DB pension so not a pot at all.

when I login - it tells me that I can withdraw a 6K lump sum at a reduced p.a. pension?
Am I not understanding something correctly?

If it’s quoting you a lump sum and annual pension rather than an overall pot value that suggests it is a defined benefit scheme. As a pp said if you’re no longer working there you won’t be able to transfer anything into it.