Cashing in a pension.

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19 May 2015 10:26 by Acapulco Star rating in Costa Blanca South.. 342 posts Send private message

Acapulco´s avatar

I think there have been changes since all the QROPS info on here and anyhow a lot of it is a bit confusing. All I want to know is what happens if I cash in my pension u.k. private pension as I am told I can now do and transfer the money to Spain. I assume it will be heavily taxed in Spain but after cashing it in my income will be lower so annual tax should be lower. 

Has anyone looked into this and if so any sound advice will be welcome.



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19 May 2015 12:59 by Hephaestus Star rating in The Peak District Na.... 1237 posts Send private message

The UK rules state that the first 25% is tax free and the residual amount will be taxed at the highest marginal rate applicable to the annuitant. I assume that you are now taxed in Spain, you need to ask a tax specialist how the Spanish revenue would treat it for tax, your pension holder will have a taxation dept, why not give them a call?



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19 May 2015 15:20 by flamingo500 Star rating. 3 posts Send private message

If your income is to be lower once the pension is cashed in  do you mean you are already receiving an income through an annuity.

If you are already receiving income from your private pension by way of an annuity it is not yet possible to cash it in.





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19 May 2015 15:49 by Hephaestus Star rating in The Peak District Na.... 1237 posts Send private message

Yes Flamingo you are correct, other than one annuity purchase not exeeding £2,000, that is excluded. This is a crap idea by the way, if the 75% element just took your total income in the year of encashment into the 45% rate, then say a £100K fund would net you £66,250.  

 


This message was last edited by Hephaestus on 19/05/2015.

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19 May 2015 17:15 by Acapulco Star rating in Costa Blanca South.. 342 posts Send private message

Acapulco´s avatar

Thanks folks, I guess that answers my question. I am already receiving a small income from it so cannot cash in.



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19 May 2015 17:19 by camposol Star rating in Camposol. 1411 posts Send private message

Flamingo 500- I thought there had been a change to this, because  people already receiving incomes couldn't benefit from the new reforms,  and were complaining 





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19 May 2015 17:34 by Hephaestus Star rating in The Peak District Na.... 1237 posts Send private message

Current annuitants will be able to 'sell' their annuity on the open market from April 2016, but tax charges could still be horrendous.

 


This message was last edited by Hephaestus on 19/05/2015.

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19 May 2015 21:26 by flamingo500 Star rating. 3 posts Send private message

The tax situation is just one concern,  the purchaser of any annuity must surely have to consider the probable life span of the annuitant.

I guess that any cash offers may involve requesting medical history from GPs and possible medicals or maybe a really low cash offer because of the risks involved to the purchaser. 





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20 May 2015 08:58 by Hephaestus Star rating in The Peak District Na.... 1237 posts Send private message

The same applies to folk that purchase property with the seller/sellers becoming life tenants, it doesn't appear to put them off, it's all in he price and he age of the purchaser, it's a good idea if the purchaser has half a chance of outliving the seller. wink



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20 May 2015 09:42 by steone Star rating in Santiago de la Riber.... 386 posts Send private message

This is such a complex subject without a simple single answer. You need advice from an experienced IFA before you do anything. I will not go into why you should use and IFA instead of going direct to any company.

Some of the points to look out for are:-

Do NOT buy and annuity NOW. Interest rates are far too low and you have too many years left to live. If, against advice, you want an annuity and you have health problems you must inform the company offering the annuity and asked for an increased rate.

Ask yourself why you want to convert your money to euro 'today' as the rate will fluctuate in the years to come.

You have not stated how much money you have in your fund. If it is sufficiant then a much better 'vehicle' to use instead of an annuity is Drawdown. Discuss this with your IFA.

If you have 'cash' to invest think about certain investments that are invested in Sterling or Euro but are protected under UK schemes. i.e. if you invest more than €100k then you are GUARANTEED a minimum of 90% of your capital if the institution goes 'bust' instead of only having an amount up to €100k if invested over here. Some of these are taxed at your highest rate in the UK on the amount withdrawn (each year) but if you are a fiscal resident in Spain then you are only taxed on 25% of the withdrawal/income.

Whilst I can and will not give specific advice here I would suggest that if you need cash now then take your 25% tax free now and leave the rest of your pension fund to grow either with the holding company or another pension company of your IFA's choice.



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20 May 2015 11:18 by flamingo500 Star rating. 3 posts Send private message

Steone

Your say you are not giving specific advice but ' Do NOT buy an annuity NOW', is that not specific.

For various reasons it may still be good advice to purchase an annuity, for instance, as you mentioned, people may have some health isssues and this can, dependant on the issues, quite substantially increase the annuity rate.

For older pension plans a Guaranteed Annuity Rate might be included. With these the annuity rate can quiteeasily be double or more.

Further there is an investment risk to all Drawdown contracts and it may be that absolute secutirty of income is needed, maybe not with the whole pension pot but with a proportion of it to provide a base income to cover ongoing outgoings.  

I do agree though that any one in this situation should seek professional advice even though fees will be involved.

 

 

 





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20 May 2015 12:35 by Hephaestus Star rating in The Peak District Na.... 1237 posts Send private message

Current annuity rates may be as good as it gets, we have entered a low inflation, low interest era where stability is the name of he game. Waiting for something that may never happen is a poor option as you never get the waiting period back, I took full tax free cash and have now drawn 4 years pension payments, I take them annually in advance, this comes to 42% of the original pension fund. it will take me a further 12 years to break even.

I have ISA's, equities and cash savings that amount to a lot more than my pension fund, as a private sector employee I had no iron clad final salary pension to rely on so settled for diversification. My advice to anyone in the private sector is to remember that when you get older you can afford to chip away at your savings, after all you can't take them with you when you die.    



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20 May 2015 15:05 by Acapulco Star rating in Costa Blanca South.. 342 posts Send private message

Acapulco´s avatar

How lucky are you. I started drawing my pension 7 years ago and still have to draw another 20 years to break even :-(



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20 May 2015 16:10 by Hephaestus Star rating in The Peak District Na.... 1237 posts Send private message

Acapulco,

I opted for level annuities with good spouses guarantees, had I gone for say 3% p/a escalation I would be in a similar position to you. I also received a slightly impaired life rate due to my rheumatoid arthritis, I would have preferred a lesser rate with no condition.



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