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Legacy small DB pension pot

AndrewInDevon
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Legacy small DB pension pot

#657498

Postby AndrewInDevon » April 2nd, 2024, 4:30 pm

Today I got a surprise letter about a very small DB pension pot I never new existed! It arose when I was an apprentice for less than 2 years. The scheme has somehow managed to track me down after 45 years and several moves all over the UK.

While the amounts are small I think its amazing...when I was an apprentice my pay was £50 per week in cash...I'd never felt so rich and didn't know what to do with the it, even after paying mum £10 'board'! I left my apprenticeship after less than 2 years and went to college to do A levels then on to University. I have no recollection of being in the company pension scheme and have never received any comms from them...until today.

The Fund says my annual pension is worth £640 pa from January 2028. I've asked for a transfer value and would expect that to be around £8k-£9k.

So what do I do with a small surprise pot?

I have recently fully retired but remain a higher rate taxpayer thanks to the Conservatives policy on fiscal drag, so £640 pa gross becomes £32 per month after tax.

I don't have a SIPP account (only an ISA and general investment account with no plans to touch any of it for 7 to 10 years or some unexpected emergency). I fully utilised the tax-free allowance for lump sums when I retired so there's no escaping tax whatever I do.

So I could....

1) Take the pension in 2028...but while it's a surprise, it's an irritatingly small surprise but £32 would buy me 2 good bottles of wine a month!

2) Transfer into a SIPP, which I'd have to open. I am with Interactive Investor so that would cost me £10 per month. I'd invest it until I want to draw on it. I have no plans to touch my current investments for the next 7 to 10 years and I don't need a SIPP. So a small £9k SIPP at an annual cost of £120 (1.3%) isn't great and it becomes a different type of minor irritant, albeit a nice one to have. Maybe I should buy shares in the company!

Any thoughts on my options?

Alaric
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Re: Legacy small DB pension pot

#657526

Postby Alaric » April 2nd, 2024, 6:02 pm

AndrewInDevon wrote:Any thoughts on my options?


You should have the option of taking the whole value as a lump sum "trivial pension". You should get 25% of it without tax and the balance taxed at your marginal rate as income.

Lootman
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Re: Legacy small DB pension pot

#657531

Postby Lootman » April 2nd, 2024, 6:14 pm

Alaric wrote:
AndrewInDevon wrote:Any thoughts on my options?

You should have the option of taking the whole value as a lump sum "trivial pension". You should get 25% of it without tax and the balance taxed at your marginal rate as income.

Yes, it is too small an income to really be worth declaring it for tax, having to have a PAYE code, and so on. I would also just cash it out. Do you know the limit for a "trivial pension"?

I have a few residual occupational pensions from the first five 5 employers I was with after university, from 1975 to 1987. I have never bothered to contact those schemes as I had assumed that the amounts due are low. But I guess if one contacted me out of the blue like this, and it was worth a few hundred a month, I'd consider it.

I wonder what my one year with the NHS 48 years ago would be worth now?

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Re: Legacy small DB pension pot

#657534

Postby scrumpyjack » April 2nd, 2024, 6:47 pm

I would be very surprised if the transfer value of a pension of £640 was only 8-9k, particularly if it has any sort of inflation protection. One hears of multipliers of 30 to 40 times!

The big problem then becomes, if you want to do anything other than keep the DB pension, you will pay a fortune for compulsory 'advice', which may well end up advising that you should do nothing!

Alaric
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Re: Legacy small DB pension pot

#657547

Postby Alaric » April 2nd, 2024, 7:51 pm

Lootman wrote:. Do you know the limit for a "trivial pension"?


When it's alongside some other pension benefit, it's £ 10,000 in value. When all possible schemes ae added together and less than £ 30,000 it's £ 30,000.

What can be done will also depend on what the scheme rules allow.

A google for "What are the trivial commutation rules for pensions?" finds quite a number of hits, some scheme specific for the largest DB schemes.

AndrewInDevon
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Re: Legacy small DB pension pot

#657583

Postby AndrewInDevon » April 2nd, 2024, 11:24 pm

I don't think the £30,000 trivial pensions route will apply as the £30k limit applies to the value of all your pensions, including those in payment. I already have a good DB pension in payment so am well above the £30k limit already.

https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

I've far exceeded my LTA value, even with IP2016 protection, when I took my current pension so I definitely wont be entitled to a further 25% tax-free element on the recently discovered small pension.

I'll get my transfer value and see what its value is and what options they offer me.

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Re: Legacy small DB pension pot

#657588

Postby Lootman » April 2nd, 2024, 11:48 pm

AndrewInDevon wrote:I don't think the £30,000 trivial pensions route will apply as the £30k limit applies to the value of all your pensions, including those in payment. I already have a good DB pension in payment so am well above the £30k limit already.

https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions

That sounds reasonable but how is it enforced?

Suppose you already have an entitlement to pensions A, B and C, with a value exceeding that £30,000 limit. Now suppose you discover a "small" pension D. How do the administrators of D know about A, B and C, so as to not allow you to cash D out under the "trivial pension" rule? Seems to me that A, B, C and D know nothing about each other; they just know the value of their own pot.

And doesn't it imply that you should start cashing out small pensions first, BEFORE you start asking about larger pensions, since earlier you would be well below that £30,000 limit?

AndrewInDevon
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Re: Legacy small DB pension pot

#657712

Postby AndrewInDevon » April 3rd, 2024, 6:02 pm

The pension fund I am dealing with has been remarkably efficient - especially as its tax year end. They have given me a TV of £9,154...not bad for less than 2 years service as a lowly paid apprentice who never got beyond the firms apprentice school, so never really had a real productive job there.

AndrewInDevon wrote:
I don't think the £30,000 trivial pensions route will apply as the £30k limit applies to the value of all your pensions, including those in payment. I already have a good DB pension in payment so am well above the £30k limit already.

https://www.litrg.org.uk/pensions/pensi ... l-pensions

That sounds reasonable but how is it enforced?


Its a self-declaration. The forms I am being asked to sign are very explicit in asking for every pension arrangement you have and make it clear that you have a legal responsibility to declare everything. The question on the form is explicitly testing whether I qualify for trivial pensions commutation as I guess they are trying to be helpful as well as legally compliant.

I've decided to take the TV, put it in a SIPP and invest it in a global fund - hopefully for a decade or more. In the event tax thresholds increase at some future date, maybe I will be able to manage a future drawdown at a basic rate of tax. If not, its all a bonus anyway!


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