What are the risks of cashing in my £45k personal pension?

I OPTED out of Serps in the late Eighties, electing to have part of my National Insurance paid into a personal pension.

It is worth about £45,000. I am 60 and considering taking it. If I do will I get 25 pc tax-free? I earn about £33,000 a year, so if I took it all at once as a lump sum how much tax would I have to pay?

I’ve also read that if a pension pot is over £30,000 you must seek financial advice. Is this just verbal advice or do I have to pay someone and produce their recommendations for the pension company?

A. T., Berks. There will be thousands of people in a similar position to you because opting out of Serps was, at one time, very popular. Serps — or the state earningsrelated pension scheme —, to give it its full name — was a top-up to the basic state pension.

It later metamorphosed into the state second pension, which in turn disappeared in the pension reforms of 2016.

At one time it was possible to opt out of Serps and have part of your National Insurance paid into what was known as an Appropriate Personal Pension.

This moved the risk to the individual, but offered more flexibility and the opportunity to build a larger pot.

APPs became ordinary personal pensions in 2012 and are subject to the same rules.

I spoke to chartered financial planner Danny Cox of adviser hargreaves Lansdown. he says that 25pc can be taken as a taxfree lump sum. This would be £11,250 in your case.

The tax question is more complex. If you took the other £33,750 all at once, based on your current income, this would push you into the higher-rate tax band.

The result would be that you would lose £11,000 to tax — almost a quarter of your pension.

A much better option would be to move your pension into an income drawdown plan.

You could still take the full taxfree lump sum but would be able to withdraw your remaining £33,750 over three years. You could take one payment now, one after April 6 and the final one after April 6, 2019.

This would reduce your tax bill to £4,350 and you would not pay any higher-rate tax, assuming your other income remains the same. So you would end up with another £6,650 in your pocket.

Mr Cox says: ‘If your income is likely to fall, perhaps due to retirement, the amount of tax you might pay could fall further, so it may be an idea to wait until that happens before doing anything.’

he also warns that if you’re spreading out your withdrawals, it may be worth reducing your risk by switching from stocks to a money or cash fund.

As to the question of financial advice, this is only compulsory when a pension is worth £30,000 or more and you have guaranteed benefits such as a final salary scheme or a guaranteed annuity rate. This does not apply to you but you may still wish to take advice — as Mr Cox has illustrated, it can save you thousands of pounds. WE TOOK a holiday in Thailand. Our hotel room had faulty air conditioning which caused the room to be damp and mouldy.

On return to the UK I noticed a problem with my eye and was referred to hospital. I received drops, which were sourced from America, at the tropical medicine hospital in Liverpool and had to have invasive treatment which was very painful.

Now I have lost the eye, cannot see properly and my confidence has gone. I’ve tried to claim on my Axa travel insurance but have hit a brick wall.

S. M. Stirling. I hAve a great deal of sympathy for your situation, but when I put it to Axa they maintained that you do not have a claim on your travel insurance policy.

The personal accident section would pay up to £30,000 if an accident incurred overseas resulted in you losing an eye. But this covers bodily injury — which is defined as an identifiable physical injury caused by sudden, unexpected, external and visible means including injury as a result of unavoidable exposure to the elements.

It seems that rather than an injury exactly, you picked up an infection which resulted in your eye being removed.

Your surgeon supplied a letter which made it clear that he felt the fungal infection was far more likely to have been picked up in warm and humid conditions in Thailand than in the UK, where this particular infection is extremely rare.

Treatment took place in the UK so there would not appear to be a claim under the medical section either.

The crux of the problem comes down to definitions within the policy. So I suggest that you take your case to the Financial Ombudsman. Call them on 0800 0234 567.

I have no idea whether you will be successful. But this is precisely the sort of thing the Ombudsman is for: to come to a fair adjudication in a dispute between a company and its customer.