Private Pensions Lump Sum

[durhamboy]

Just wondering. From today those over age 55 with private pensions in the UK can take them as a lump sum. Seeing as these are funds that are immediately available (albeit with some tax deducted) could the potential net amount be counted towards fulfilling the cash savings element for a UK settlement visa?

For example, someone may have a pension pot of £100,000 which could give an immediate payment after tax of say £70,000. Obviously if they took the lump sum it would satisy the £62,500 requirement for cash savings for a UK SV. But would HMG accept it if the lump sum was not actually taken on the basis that it is cash funds immediately available?

[7by7]

From 7.4. Cash savings – further guidance of the financial appendix

7.4.4 For example, in the UK a ‘stocks and shares’ Individual Savings Account (ISA) does meet the definition of a savings account and the funds can be considered as cash savings if all the requirements above are met. Likewise, a pension savings account from which savings can be immediately withdrawn (like the 401K in the US).
(My emphasis)

So it seems the answer is probably 'yes.'

But as I don't know the difference between a pension savings account and a private pension plan, if any, I'd suggest anyone considering doing this check with UKVI first.

Even with investments which are not acceptable, such as stocks and shares, the money, once cashed in and placed into a bank account, can still be used immediately; it does not have to have been in the bank for 6 months provided the conditions of para 7.4.8 are met.

So if the potential cash withdrawal from a private pension is not acceptable, one could take the money out and put it in a bank and then, provided those conditions are met, use that money towards the financial requirement without having to wait until it had been in the bank for 6 months.

It needs to be remembered that taking some of your pension plan as a lump sum will severely reduce the amount of pension income you will receive; think carefully and seek professional financial advice before so doing.

[TCA]

Interesting question db. My first thought is that the immigration powers-that-be have probably never even considered the new pension rules. This is the closest bit below of seeming relevance within the financial requirements pdf:

"7.4.4. For example, in the UK a ‘stocks and shares’ Individual Savings Account (ISA) does meet the definition of a savings account and the funds can be considered as cash savings if all the requirements above are met. Likewise, a pension savings account from which savings can be immediately withdrawn (like the 401K in the US)."

That last bit would say to me that the answer to your question could be yes, although a pension invested in funds or anything else, might not count as a "pension savings account".

Edited to say 7by7 beat me to it, but we seem to have reached the same conclusion. Or lack of conclusion.

Edited April 6, 2015 by TCA

[Nomad97]

I heard the following on the UK News last night. It seems 85% of people do not know that when taken as a lump sum only 25% of your pension fund is tax free. The other 75% is taxable income and tax will deducted at the appropriate rate. It may also push your income into the higher tax band. Before you cash in you pension you should fully understand the implications of the tax rules and how much tax you will be liable to pay.

[durhamboy]

Yesterday's change made the total value of a pensions pot available in cash. Prior to that I think it is true to say that a part of the pension pot (25%?) was available to be taken in cash. I wonder if anyone tried to make the argument that it was cash savings with UKVI.

7by7 - Like you, I'm also not sure of difference between a pension plan and a pensions saving account. Pensions can be extremely complicated even for the experts to get their heads around let alone us and UKVI. Possible a difference between the two is that a savings account might have a fixed value whereas a plan may be subject to a market valuation and could go down as well as up. Possibly that argument would be used by UKVI to not accept the value of pension plans that are available in cash. Trouble is, when you communicate with UKVI one normally just gets a bland response just quoting the rules rather than any interpretation - that's my experience anyway.

[Basil B]

I heard the following on the UK News last night. It seems 85% of people do not know that when taken as a lump sum only 25% of your pension fund is tax free. The other 75% is taxable income and tax will deducted at the appropriate rate. It may also push your income into the higher tax band. Before you cash in you pension you should fully understand the implications of the tax rules and how much tax you will be liable to pay.

And there will be many conmen out there to exploit the vulnerability of pensioners.

I feel although there should be many options available to pensioners including draw down, their pension pots should be ring-fenced, more than anything to protect pensioners from being exploited.