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    • lindabea
    • By lindabea 19th Sep 16, 4:38 PM
    • 903Posts
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    lindabea
    Pension Options
    • #1
    • 19th Sep 16, 4:38 PM
    Pension Options 19th Sep 16 at 4:38 PM
    The time has come for my partner to consider his private pension options. It is a DC pension, not a huge fund amount (22K), although it had a GAR of 10%.

    He is thinking of taking 25% lump sum and buying an annuity with the rest. The scheme does not allow drawdown but he can transfer to another provider. However, he will of course lose the GAR. The other option he is considering is not taking the tax free lump sum, and uses the whole fund to buy the annuity at 10%. He thinks that doing this will give him the advantage that the 'lump sum' will benefit from a 10% return as against a lower rate in say a S&S ISA. He can also cash it all in, but we don't think this will be of any benefit as we don't need the cash.

    I should say that he will be a basic rate tax payer when his SP kicks in. Are we thinking along the right lines here, or is there anything else we should take into account before deciding.
    Before doing something... do nothing
Page 1
    • margaretclare
    • By margaretclare 19th Sep 16, 4:43 PM
    • 9,990 Posts
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    margaretclare
    • #2
    • 19th Sep 16, 4:43 PM
    • #2
    • 19th Sep 16, 4:43 PM
    I believe annuities used to be a good option, in fact almost the only option. They are much less so now. You get a lot less for your money than years ago, and there are a variety of other options to consider.

    Some independent financial advice might be a good idea.
    r ic wisdom funde, r wear ic eald.
    Before I found wisdom, I became old.
    • xylophone
    • By xylophone 19th Sep 16, 5:52 PM
    • 18,396 Posts
    • 10,316 Thanks
    xylophone
    • #3
    • 19th Sep 16, 5:52 PM
    • #3
    • 19th Sep 16, 5:52 PM
    You get a lot less for your money than years ago
    The OP has a Guaranteed Annuity Rate of 10%.
    • dunstonh
    • By dunstonh 19th Sep 16, 5:56 PM
    • 84,053 Posts
    • 49,067 Thanks
    dunstonh
    • #4
    • 19th Sep 16, 5:56 PM
    • #4
    • 19th Sep 16, 5:56 PM
    He is thinking of taking 25% lump sum and buying an annuity with the rest.
    What are the plans for the 25%? Can the alternative options provide 10% interest/income?

    a 10% GAR is valuable and not much can beat it.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • xylophone
    • By xylophone 19th Sep 16, 6:03 PM
    • 18,396 Posts
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    xylophone
    • #5
    • 19th Sep 16, 6:03 PM
    • #5
    • 19th Sep 16, 6:03 PM
    http://www.scottishwidows.co.uk/retirement-planning/things-to-consider/know-your-pension/index.html

    http://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/buying-an-annuity-how-to-shop-around/guaranteed-annuity-rates

    http://www.telegraph.co.uk/finance/personalfinance/pensions/9937300/The-annuities-that-can-double-your-money.html - three years old so the suggested standard annuity figure would probably be rather optimistic now.
    • sandsy
    • By sandsy 19th Sep 16, 8:06 PM
    • 952 Posts
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    sandsy
    • #6
    • 19th Sep 16, 8:06 PM
    • #6
    • 19th Sep 16, 8:06 PM
    An annuity of 2200pa would cost significantly more than 22k to purchase.

    Which also means that compulsory advice might be needed if you were to give it up, as the advice requirement is based on the value of the benefit being given up and is required when the value is at least 30k.
    • Triumph13
    • By Triumph13 19th Sep 16, 10:15 PM
    • 671 Posts
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    Triumph13
    • #7
    • 19th Sep 16, 10:15 PM
    • #7
    • 19th Sep 16, 10:15 PM
    Unless your partner has a medical condition that would imply a seriously reduced life expectancy, you should be biting the provider's hand off to grab that 10% annuity.
    • Teaandscones
    • By Teaandscones 20th Sep 16, 12:07 AM
    • 87 Posts
    • 68 Thanks
    Teaandscones
    • #8
    • 20th Sep 16, 12:07 AM
    • #8
    • 20th Sep 16, 12:07 AM
    If you take the 10% GAR without any lump sum, the value will be closer to 50k rather than the 22k nominal value.
  • jamesd
    • #9
    • 20th Sep 16, 2:59 AM
    • #9
    • 20th Sep 16, 2:59 AM
    It is a DC pension, not a huge fund amount (22K), although it had a GAR of 10%.
    Originally posted by lindabea
    Use it all on the GAR with no tax free lump sum. Yes he'll lose the tax free aspect of the lump sum but the 10% guaranteed for life income is an excellent deal.
    • Bootsox
    • By Bootsox 20th Sep 16, 6:40 AM
    • 132 Posts
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    Bootsox
    Is the GAR fund closed or can he make more contributions?
    • AnotherJoe
    • By AnotherJoe 20th Sep 16, 7:38 AM
    • 3,481 Posts
    • 3,533 Thanks
    AnotherJoe
    What Jamesd said, unless he has a life limiting condition, he'd be barking to do anything but take the GAR, it simply can't be beat, and as you said, you don't need any cash free element.
    • annaccordion
    • By annaccordion 20th Sep 16, 1:58 PM
    • 12 Posts
    • 2 Thanks
    annaccordion
    Check out the guarantee period with it too - often you can get guarantee for 10 or even 20 years at surprisingly small reduction...
    I just got 20 year guarantee for 400 pa reduction on c100k pot (with a c10% GAR).
    • lindabea
    • By lindabea 20th Sep 16, 8:52 PM
    • 903 Posts
    • 131 Thanks
    lindabea
    Use it all on the GAR with no tax free lump sum. Yes he'll lose the tax free aspect of the lump sum but the 10% guaranteed for life income is an excellent deal.
    Originally posted by jamesd
    Thank you Jamesd - this is what we were considering as a better option instead of taking the lump sum. However, we think that the 10% GAR will only be used if taking an annuity payable annually in arrears. If the annuity is paid on a monthly basis or any other frequency, the rate will be lower. This is what Phoenix did with another pension my partner had with them when he was 60. On that occasion they reduced the GAR from 9.57% to 8.5% because he changed the frequency to monthly instead of yearly. Still ,a decent rate by current rates.
    Before doing something... do nothing
  • jamesd
    A reduction from 9.57 to 8.5% looks a little too much so if it's affordable just take arrears and use a 0% for spending credit card if no other money is available.

    The big thing to watch out for is not getting the GAR at all with a change of terms. they might not bother to mention that until it's too late because it'd save them a lot of money!
    • lindabea
    • By lindabea 21st Sep 16, 8:43 PM
    • 903 Posts
    • 131 Thanks
    lindabea
    Jamesd - thank you for your kind advise. My partner rang Phoenix today to get some further clarification. Apparently, the GAR will be payable on a month in advance basis, and with a 5 year guarantee. So we're very pleased with the terms. I don't think he'll be shopping around for alternatives, as we don't think we can improve on these terms.
    Before doing something... do nothing
  • jamesd
    That looks like a good deal. No problem at all not to shop around, it can't be beaten on the open market unless health is far from good.
    • choccydigestive
    • By choccydigestive 22nd Sep 16, 1:36 PM
    • 2 Posts
    • 0 Thanks
    choccydigestive
    10% with a 5yr guarantee is fantastic. I wouldn't recommend taking cash out upfront unless you needed the money urgently or were paying far higher rates on existing debt. Might even be worth checking if you can contribute more into the pot if you can afford it.
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