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Taking a cash sum from your pension

Taking a cash sum from the Plan (often called a ‘pension commencement lump sum’) allows you to access up to 25% of your pension as a tax-free payment when you retire. If you were to take more than 25% as cash, then the excess would be treated as taxable income.

One key advantage of doing this is the immediate availability of cash, which can be used to pay off debts, fund large purchases, or provide a financial buffer. It also gives you flexibility and control over how the money is used or invested.

However, there are disadvantages to consider:

Taking a lump sum usually reduces the amount of regular pension income received for life, which could impact your long-term financial security. This trade-off may be significant, especially if you live longer than expected. Additionally, while the lump sum is typically tax-free, any returns generated from investing it may be taxable. There is also the risk of spending the money too quickly. Careful consideration is essential before making this decision.

Taking all your pension as a cash sum

If the value of all of your pension benefits from all your pension arrangements is less than something called the ‘trivial lump sum limit’ (currently £30,000), you may be able to take the entire value of your Plan pension as a ‘trivial lump sum’.

If the value of your Plan pension is less than £10,000 you might be able to take it as a cash lump sum, known as a ‘small lump sum’.

If Trafalgar House believe you may be eligible to take your Plan benefits as either a trivial lump sum or a small lump sum, they will let you know when they send you your retirement pack.

Don’t forget only the first 25% of these lump sums will be paid to you tax free. The remainder will be subject to income tax.

Taking a ‘bridging pension’

The bridging pension option gives you a higher level of income from the Plan between the time you retire and when you reach your State Pension age. Once you reach your State Pension age, the pension income paid to you by the Plan will reduce.

Because most members take their retirement benefits before they can claim the State Pension, a bridging pension aims to ‘smooth out’ your retirement income, so what you’ll receive from the point you take your Plan benefits is broadly similar to the income you’ll have once your State Pension kicks in.

A bridging pension can provide greater financial support in the early years of retirement, when you may be more active and have higher spending requirements. It can also help those who retire before reaching State Pension age in maintaining a more consistent standard of living.

Also, with a bridging pension, it may be possible for you to retire at an earlier age if you have the option to receive a higher Plan pension in the years before your State Pension age.

However, there are disadvantages to consider. When the State Pension starts, the bridging pension reduces, which can be perceived as a drop in income if not properly understood. This may create budgeting challenges for some retirees.
It’s worth bearing in mind if your Plan pension and/or another income you receive before reaching your State Pension age are enough to meet your needs, then a bridging pension might not be right for you.

What else do I need to know about the bridging pension option?

If taking a bridging pension is something you think you’d like to consider, there are some things you need to be aware of:

1. Not all members will be eligible for the bridging pension option. Whether you are, will depend on several things including the total value of your benefits. When you apply to take your benefits, the Plan’s administrator, Trafalgar House, will be able to tell you if the option is available to you. If you are, they will send full details with any retirement quote you ask them for.
2. If you would like to take the bridging pension option, you will need to take professional financial advice from a regulated and qualified adviser. It’s important you know that the Trustee cannot accept an application for taking a bridging pension without evidence of this. Remember, the Trustee will cover the cost of one advice session with Origen Financial Services.
3. Once you’ve elected to take a bridging pension, you won’t be able to change your mind later – your decision cannot be reversed.

Pension Increase Exchange

Pension Increase Exchange (PIE) is an option that allows some members to exchange future pension increases for a higher starting pension when they retire. In other words, with PIE, you will receive a larger pension at retirement. However, in return, you will be giving up most of your rights to receive annual pension increases as set out in the Plan rules.

The main advantage of a PIE is it provides a higher initial income. This may be attractive to those who want more money in the early years of retirement or who do not expect to live long enough to benefit fully from future increases. It can also offer greater certainty over retirement income.

However, there are disadvantages:

Giving up inflation protection means the real value of your pension may decrease over time as living costs rise. This could reduce purchasing power in later retirement, particularly during periods of high inflation.

What else do I need to know about Pension Increase Exchange?

If PIE sounds like something that could be of interest to you, there are some things you need to be aware of:

1. Not all members will be eligible for the PIE option. Whether you are, will depend on a number of things including the total value of your benefits. When you apply to take your benefits, the Plan’s administrator, Trafalgar House, will be able to tell you if the option is available to you. If it is, they will send full details with your retirement pack.
2. If you would like to take the PIE option, you will need to take professional financial advice from a regulated and qualified adviser. It’s important you know that the Trustee cannot accept an application for taking the PIE option without evidence of this. Remember, the Trustee will cover the cost of one advice session with Origen Financial Services.
3. Once you’ve elected to take the PIE option, you won’t be able to change your mind later – your decision cannot be reversed.

Transferring your benefits out of the Plan

It is also possible to transfer the value of your benefits out of the Plan and into another approved pension arrangement.

Doing so can give you more flexibility about how and when to access your pension savings. For example, by transferring to a defined contribution (DC) scheme, you may be able to take larger lump sums (or even all your pension as a cash sum), pass remaining funds to beneficiaries on death or buy a pension income (called an ‘annuity’) on the open market. Whether the options available by transferring your pension are right for you will depend on your own circumstances.

If you are considering transferring out of the Plan, we strongly recommend you seek advice from a qualified adviser before making any decisions. 

Remember, the Trustee will cover the cost of one session of retirement advice from Origen Financial Services, who are regulated by the Financial Conduct Authority.

What else do I need to know about transferring out of the Plan?

When thinking about transferring, it’s really important you are aware of the following:

1. Transferring benefits out of a defined benefit (DB) pension, such as the HP Plan, is a significant financial decision that you should carefully consider. This is because DB schemes provide a guaranteed income for life in retirement, which offers a high degree of security and protection against investment risk. If you transfer your benefits, all your rights in the Plan will end, including annual pension increases and dependant’s benefits.
2. When people transfer their pension benefits, it’s a time when they are most susceptible to the risks of pension scams. It’s vital you are aware of these risks. Before going ahead, please click here to visit the Pensions Regulator’s website www.thepensionsregulator.gov.uk/en/pension-scams where you’ll find lots of helpful information. If you apply to transfer out of the Plan, the Trustee has a legal responsibility to check your application for any warning signs that you may be the target of a scam. In most cases, you will be asked to take some free guidance from MoneyHelper, and the Trustee won’t be able to transfer your benefits before you do so.
3. If the value of your pension benefits in the Plan is £30,000 or more, it is a legal requirement that you take financial advice from a regulated and qualified adviser before the transfer can take place. Don’t forget, the Trustee will cover the cost of one session of at-retirement financial advice with Origen Financial Services.
4. You can ask the Plan administrator, Trafalgar House for a transfer quote at any time. However, if you ask for more than one quote in any 12-month period, you may be charged for this. You can ask for a quote by signing into your online account at www.myworkpension.co.uk or by calling 0208 090 8051.

Your regular pension payments

Most members will receive their regular Plan pension payments on the 6th of each month directly into their chosen bank account.

If your bank account is outside the UK, your payment may take an extra few days to arrive. Also, please bear in mind that all payments are made in pounds sterling, but paid into your overseas bank account in the local currency. This means the amount you’ll receive will be affected by changes in the exchange rate.

It’s important you remember your regular pension payments count as income, and so will be subject to income tax at your marginal rate. Trafalgar House will only send you a payslip when your payment (after tax) changes by more than £5 from the previous month. This helps keep the Plan’s costs down and also helps the environment by cutting down on wastepaper.

If you’d like to see your Trafalgar House payslips for every month, you can do this by logging into your My Work Pension account at www.myworkpension.co.uk

At the end of each tax year, Trafalgar House will send you a combined P60 and payslip.

Pension increases

All pensions being paid are reviewed every April and may be entitled to receive an increase.

Different rates of increase are applied to different elements of your pension and vary depending on which section you’re a member of. You can find out more on the benefits page of this website.

Looking after your loved ones

If you were to die, some benefits may be paid to your loved ones automatically. Meanwhile, other benefits will be paid at the discretion of the Trustee. However, the Trustee will want to take your wishes into account. To keep the Trustee informed of your wishes, please sign into your My Work Pension account. Once you’ve done this, go to the ‘nominated beneficiaries’ section, which you’ll find under the ‘Your account’ menu. Alternatively, get in touch with the Plan’s administrator, Trafalgar House, and they will be able to send you a form. You can call them on 0208 090 8051.

Additional support

If your income is low, you may be eligible for Pension Credit to help with living costs. To find out more about Pension Credit, please click here to visit www.gov.uk/pension-credit You can also get further and guidance from Age UK. You can call their free advice line on 0800 678 1602 or go to www.ageuk.org.uk