Poor annuity rates
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AnotherJoe wrote: »Or I suppose just put it all in cash at about 1%, take out 8,000 a year and it will last maybe 39 years anyway and that's still more than you'd get with an annuity.
If I've misunderstood your comment then I apologise. However, my sums would suggest that £200,000 would run out in 27 years' time.
A 60 year old female has a 47% chance of living to at least age 87 (according to latest ONS data).
Having a best case scenario of running out of money age 87 isn't one that would appeal to a lot of people.I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.0 -
I've been offered £7100, about 3.5%.
Is that a quote from an IFA or the in-house scheme?
You dont. You would put it in cash and leave it in the pension. Although that would nearly always be a bad move. It actually introduces new risks that are less of an issue with investments. Remember risk is not on/off. It is a sliding scale. All options have some risk.But how to get it out of the pension scheme and into cash without being hit massively for tax?
Retirement income planning should be viewed jointly. It is household income that matters and what happens to it on death.
Your wife likely has a stepped income need (more now, less at state pension age). So, in scenarios like that it would not be uncommon to use drawdown in the first period and switch to annuity later.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
To clarify. The £200K fund is hers. I separately have 2x final salary pensions amounting to £12K pa when I take them and £60K in money purchase. I plan to take these when I retire Nov 2018 at 65 when I will also get the state pension, confirmed at the full weekly amount.
She is 60 and has retired and we are debating whether to leave her fund in the pension plan for now or turn it into an annuity now or make it a drawdown.
We don't need the income at this point, we are just scared that annuity rates might drop even further!0 -
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We don't need the income at this point, we are just scared that annuity rates might drop even further!
And they may go up as gilt yields begin to increase.
Plus she will be older and there may be medical conditions.
And dont forget that IFA arranged annuities are nearly always higher than in-house annuities.
If you dont need the income, then leave the pension uncrystallised. That is a general rule of thumb. The money is in the most favourable tax position at this time.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
When you reach your state pension age you can start to defer claiming that to get guaranteed for life inflation-linked income. It's a good deal if in normal good health. Pays something over twice the amount that spending the same money on an inflation-linked annuity would pay and also increases the safe withdrawal rate from investments in drawdown.I've been offered £7100, about 3.5%. I'm worried about income drawdown. It would have to be invested somewhere and the overal value of the fund could drop in these uncertain times.
Around age 80-85 or so or if in less good health than OK annuities can start to become very competitive compared to drawdown. That's because at those sorts of times the cross-subsidy to those who live a long life from those who die early becomes significant enough to overcome the raw low rate issue.
You have a fairly easy choice: take more than twice the income level, increasing with inflation, and accept the ups and downs of investment value, or guarantee for life half of the income level without inflation linking.
Put somewhat differently: you can throw away half of your capital and buy an annuity now or keep the capital and see it go up and down instead, when it probably won't ever drop by more than the half you write off by buying the annuity. Throw away half because it only takes about half to generate the income using drawdown and state pension deferral.
Viewed that way the chance of drops looks much more positive: beats the guarantee of a usually large initial loss that you get with the annuity!
See Drawdown: safe withdrawal rates for much more on drawdown planning.
The current recommendation if using the rules suggested there would have substantially lower than usual equity investments because the cyclically adjusted price/earnings ratio is currently high in many markets.0 -
One option that I like is taking the 25% tax free lump sum and investing that in P2P. It's easy enough to get 12% before bad debt these days and 5-6% is a doddle. Both with protection of some sort, either security typically in the form of property or cars or a protection fund.Just running those sums and putting it all in cash could be quite attractive.
If she's not working she can withdraw up to her personal allowance tax free and should get started on doing that since it's an annual use it or lose it allowance. Can also reinvest in S&S ISA to continue to grow the money. Flexible ISAs allow placing the money into an ISA to use the annual allowance, withdrawing it for P2P then selling P2P and putting back into the ISA before the end of the tax year.But how to get it out of the pension scheme and into cash without being hit massively for tax?
Going beyond that, there are many countries with a tax treaty that means that you pay tax only in the country where you are resident. Some of those have a zero percent income tax rate on foreign pension income. Portugal is one which attracted quite a lot of press attention, since it offers an optional scheme with 0% rate. The 75% of a pension pot that is taxable is income. Even if taken all at once as a lump. So you can take out all 75% free of income tax anywhere. If you were to do this you'd need to avoid being tax resident in the UK for about five tax years, assorted timing fine details involved in the exact calculation. Return sooner than that and HMRC will treat the money as taken in the UK and tax you accordingly.
So holiday in Portugal for at least six months then flitting around in say Ireland or elsewhere for the rest of the required time outside the UK is an option that would appeal to some. Maybe RV touring in the United States and Canada might appeal to some people for much of the time.
VCT investing provides another way to get the money out without tax bill, just do enough buying of VCTs to eliminate say the basic rate income tax due and withdraw only up to the basic rate limit. Need to ensure that suitable VCTs are used.0 -
HappyHarry wrote: »If I've misunderstood your comment then I apologise. However, my sums would suggest that £200,000 would run out in 27 years' time.
A 60 year old female has a 47% chance of living to at least age 87 (according to latest ONS data).
Having a best case scenario of running out of money age 87 isn't one that would appeal to a lot of people.
My bad, it was a typo, i meant to put 30 but the 9 is right next to the zero !0 -
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