Should I cash in my £7,000 pension if I don't need it?

1 July 2014

Q

I have recently taken flexible retirement as I am 65. I am receiving a local government pension and I also have three other pension pots. Due to the last Budget, I was wondering if I should cash in the smallest one, which is worth about £7,000? My other pension is worth about £70,000 and is doing quite well and I do not need it at present.
From
DT/Notts

A

The proposed changes to pension rules announced in the Budget should give people far greater flexibility in how they take their pension benefits.

However, there are also a number of interim measures which have been introduced that can also provide greater choice. One of these is that people aged over 60 can take up to three pensions worth no more than £10,000 each as cash, subject to tax on three-quarters of the fund.

This should mean that you will have scope to take your £7,000 pension as cash if your provider allows you to.

Whether this is the right choice for you depends on what you are planning to do with the money and also your tax position.

For example, if you're a higher-rate taxpayer now but will be a basic-rate taxpayer in the future, then it might be worth delaying taking this money if you don't need it now.

Alternatively, if you don't need the money now you could transfer it into your larger pension. With new rules proposed to come into force next year, you should still be able to access some, or all, of that pension as cash in the future if you want to.