Pension Lump Sum.

[DJHawkes]

I've had a letter from House of Fraser and they say they can pay out a lump sum on my pension, it also says I will pay tax at 20% on all but the first £614.64. I can leave it where it is and take the annual pension in 8 years time. I am thinking I will take the lump sum, it's not a lot.
I only paid into the fund from January 1978 until June 1978 and then I left to have my first child, I think I paid in about £70 in all. Now they say I can have £2089.78 after tax. Or I could leave it where it is and it will be moved to their new scheme and continue to grow and then in 8 years time when i retire i would get either a lump sum then or a small amount monthly.
What would be the best for me? They will pay it on 29th November and it would mean I could go for a better car now that will probably last me til i retire,

[boxtops]

Dotty, I don't understand why you are being taxed on the lump sum they're offering. Our pension scheme lump sum is tax free - you're taxed on the pension itself if you're eligible to pay tax (i.e. if earnings are over the personal allowance) but the lump itself is as it is.

Personally, I'd leave it where it is. I cashed in one of my pensions early, taking a lump sum and smaller pension, and I wish now that I hadn't - but I needed the money at the time.

[DJHawkes]

i've read the letter and the FAQ booklet and it definately says it is taxable income, but because it is not being paid as a pension it is taxable. they're calling it something else but i can't find the bit where it calls it the other thing

[ubasses]

If you take the lump sum, only the first 25% is tax free and the rest is treated as income. It is treated in the same way as if you were taking your pension normally 25% can be taken tax free and the monthly pension is then taxed.

[DJHawkes]

the way i look at it this, my mum died at 72 , my grandma died at 74, if i do the same-ish, i'll only be retired 6 or 8 years, so the house of fraser won't need to pay me the pension after that, i think i'll take the money off them now, at least then i get it all,

[boxtops]

That's one way of looking at it, dotty, and if you can use the money for your car, go for it.

[wolf63]

I would take it. I got my superannuation pension when I was 40 and also had a tiny Scottish Widows pension that pays me £40 a year, A nice lump sum should have been better.

[boxtops]

It's a good return for only paying in for six months, whichever way you look at it!

[DJHawkes]

I have another one with Scottish Life, I wonder if they will write to me with the same thing? That is a lot bigger.

[boxtops]

Ask them for a forecast, dotty. It could be that HoF are writing to everyone at the moment because they are moving to a new scheme. NHS had to do that for us a couple of years ago when the new scheme came into being.

[DJHawkes]

Well I do get an annual statement, usually in September as i recall, i'll look out for it and see what it says.

[Zacs-Master]

Take it and spoil yourself. You never know what's round the corner.

[DJHawkes]

I know ZAc, but then I've just been sitting here glazing over to New Tricks latest unnecessarily complicated storyline and thinking, split 3 ways I could get my daughter the fancy samsung galaxy she wants, get the new laptop my youngest son wants and then give my eldest son the bond and deposit for a new house,

[boxtops]

That's generous dotty, but would your kids want to you do that? The pension's for YOUR future, not to buy them things....

[DJHawkes]

I know, that's true,

[factor-fiction]

You can't take it all as a lump sum , unless you have absolutely no other company/private pensions or the total fund value of all such schemes is less than £18000 (which is very unlikely if you have been in other company pension schemes). House of Fraser will probably not be aware of other schemes you may have been in.
This should help: http://www.pensionsadvisoryservice.org.uk/taking-payments-from-your-pension-pot/what-is-the-right-choice-for-me/taking-a-small-pension-as-a-cash-lump-sum

[factor-fiction]

^ and even then you can only cash in under the 'triviality' rules if you are aged 60, I believe (and I know you look much younger than that).
If you are under 60 you can only take it all as a lump if the total value is less than £2000.

[Hymie]

I’m no expert, but it looks to me as though House of Fraser are treating your pension sum of around £2,500 as a ‘trivial amount’ and allowing you to take 25% tax free, and paying your standard rate tax on the remainder.

The rules on pension ‘trivial amounts’ allows the above (rather than buying an annuity), on the proviso that the pension amount is less than £18,000 (current value). However this £18,000 figure includes all personal pensions that you have – not just to a single pension.

So if you have paid into other personal pensions during your working life, and the value of all your pensions added together exceed £18,000 – House of Fraser should not be making the offer to you.
If House of Fraser pays you this amount, and it is subsequently found to have been outside the rules (see above) – then you could find that you are landed with a tax bill for the tax relief that you were given on the original payments into the plan.

If the payment is all within the rules – my advice it to take the money. It is the reason that the rules for trivial amounts were created – knowing that you would get a very bad annuity rate with such a low pension sum.

[DJHawkes]

it says the rules have changed to allow this payment, and the value is the equivalent of a transfer value if i were to add it to another fund, as i am below pension age. I have filled the form in and my OH has suggested I use it to invest in a 50% share in a remote aerial surveying drone/device as a way of generating income in the future. (that previous sentence ref the drone should be in inverted commas and with a lol at the end but i shall pretend i am taking his idea seriously.

[factor-fiction]

Sounds wrong to me, dotty (being able to take the whole transfer value as cash now, I mean, not the investment idea- I'm not qualified to comment on that), but if they are prepared to give you the money and you want to proceed then good luck.

[grumpy01]

May be worth taking the advice of an I.F.A. in your area.I am sure you will have friends who can recommend one they have used the services of.