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  • FIRST POST
    • Confuciusone
    • By Confuciusone 8th Mar 17, 11:50 AM
    • 16Posts
    • 3Thanks
    Confuciusone
    Annuity or SIPP/Flexi Drawdown
    • #1
    • 8th Mar 17, 11:50 AM
    Annuity or SIPP/Flexi Drawdown 8th Mar 17 at 11:50 AM
    Looking for a little help and critique ….My wife aged 59 has a Prudential with Profits PP + SERPS annuity, written to age 60, now penalty free at the time of asking, she is retiring this month.

    Now intends taking her £93.5k pension fund and £23.3k 25% tax free, buy an annuity with the remaining £70k, having blood pressure and a few other minor health issues going down the enhanced option, assuming a possible 4 to 5% annuity rate….thought we made a decision.

    After talking to the IFA, happy to peruse an enhanced annuity after taking 25% and receive a pension approx 4.5%, £262 monthly, £3150 per annum, level, single life with 10 year guarantee taking over 22 years (then aged 81 years) to get her fund back.

    IFA also advised the option of taking 25% Lump Sum tax free 75% Flexi-Drawdown Fund, unfortunately IFA’s practice won’t handle Flexi-Drawdown Fund under £100k.

    After earlier dissming Flexi-Drawdown, this option is now looking an attractive and better suited as my wife has no taxable income form 2017/18 £11.5k tax allowance. She could take 25% lump sum and up to £11.5k tax free every year, depleting the fund before reaching State Pension age, avoiding tax implications, or ad hoc amounts as and when required, upto or below her tax allowance, any monies left in the fund transferable on death, unlike buying an income for life annuity.

    We have various savings and investments saved for our retirement income which have no tax implications, she feels living to age 80+ unlikely, (her parents died before reaching 70), also the possibility of losing half the fund after 10 year guarantee, we are happy to accept moderate ups and downs risks of the markets, her of pension and contributions of 30 years have been on the same roller coaster.

    So our thinking....DIY option, is to take out a SIPP that can be converted to a Flexi-Drawdown fund.

    Two questions really does our thinking stack up and any recommendations on trusted reputable SIPP / Flexi-Drawdown Fund providers.

    Many thanks.
Page 1
    • Linton
    • By Linton 8th Mar 17, 12:31 PM
    • 8,640 Posts
    • 8,614 Thanks
    Linton
    • #2
    • 8th Mar 17, 12:31 PM
    • #2
    • 8th Mar 17, 12:31 PM
    The thinking seems reasonable especially if the income is a relatively minor part of your total needs in retirement.

    I think it is dangerous to work on the basis of early death from what you have said. Lifestyle changes eg reduction in smoking, and improved medical techniques have led to a greatly extended life expectancy compared with previous generations. Someone of your wife's age in average health is currently estimated to have a life expectancy of around 89 and about as likely to live until 99 as to die before 80. However a quote for an enhanced annuity compared with the standard rate may give you some guidance on that.

    Any mainstream online brokers should be able to provide you with the drawdown facilities your want. Many are frequently mentioned on this forum. See here for a list with charges.
    • xylophone
    • By xylophone 8th Mar 17, 12:38 PM
    • 23,683 Posts
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    xylophone
    • #3
    • 8th Mar 17, 12:38 PM
    • #3
    • 8th Mar 17, 12:38 PM
    Your wife might consider HL - excellent platform, and efficient service and charges reasonable on a modest SIPP.

    Plenty of information for her to read - see

    http://www.hl.co.uk/pensions/sipp/apply-now
    • Confuciusone
    • By Confuciusone 9th Mar 17, 9:13 AM
    • 16 Posts
    • 3 Thanks
    Confuciusone
    • #4
    • 9th Mar 17, 9:13 AM
    • #4
    • 9th Mar 17, 9:13 AM
    Many thanks Linton and xylophone, i will do some more reading up and make a decission.
    • Confuciusone
    • By Confuciusone 9th Mar 17, 2:55 PM
    • 16 Posts
    • 3 Thanks
    Confuciusone
    • #5
    • 9th Mar 17, 2:55 PM
    • #5
    • 9th Mar 17, 2:55 PM
    Thinking a HL SIPP is the way to go?

    Transfer Prudential pot now £99K then additional payments and tax relief will make the fund 120k.

    Finding the number funds to invest ininitially bewildering, given me an headache.

    Would the HL's build a portfolio tool, medium risk, listing 7 funds be a sensible start for our initial fund selection.
    • xylophone
    • By xylophone 9th Mar 17, 4:45 PM
    • 23,683 Posts
    • 13,807 Thanks
    xylophone
    • #6
    • 9th Mar 17, 4:45 PM
    • #6
    • 9th Mar 17, 4:45 PM
    http://www.telegraph.co.uk/finance/personalfinance/investing/funds/12129737/Why-these-are-Britains-14-best-stock-market-income-funds.html
    may be worth a read.

    http://monevator.com/investment-trusts-for-deaccumulating-income-investors-2016-update/

    Does she intend to take a £30,000 PCLS?

    Don't forget that even if she has no relevant income, it is possible to continue to contribute £2880 per annum to the SIPP and receive tax relief of £720 - see http://forums.moneysavingexpert.com/showthread.php?t=5580163
    Last edited by xylophone; 10-03-2017 at 9:54 AM. Reason: typo
    • Confuciusone
    • By Confuciusone 10th Mar 17, 7:55 AM
    • 16 Posts
    • 3 Thanks
    Confuciusone
    • #7
    • 10th Mar 17, 7:55 AM
    • #7
    • 10th Mar 17, 7:55 AM
    Thanks xylophone.....I will study those links.

    Does she intend to take a £30,000 PCLS?.....Yes may be at some point, she has 5.5 years before her State Pension kick in.

    If my newly gathered info is correct, uncrystallised monies in a SIPP can only be withdrawn ad hoc, 25% free of tax, 75% taxable if outside her tax allowance, would she have to convert fund to drawdown, monies then crystallised, to be able to take £30,000 tax free PCLS???

    Thanks....will take advantage of the £2880/£720 contribution using her remaining tax allowance, after taking any SIPP/Flexi-drawdown monies, think I may start a SIP, I have £3k unused tax allowance for 5 years before the State Pension starts.

    Trying to make the best decisions is really making my head hurt, whilst the fund holder is trying to work out how many cruises are in the pot...
    Last edited by Confuciusone; 10-03-2017 at 8:59 AM. Reason: Error
  • jamesd
    • #8
    • 10th Mar 17, 9:03 AM
    • #8
    • 10th Mar 17, 9:03 AM
    She can take a 25% tax free lump sum from it all if she likes. The rest would go into a crystallised money drawdown account from which all withdrawals are taxable income. She can take up to her personal allowance from that with no tax due, though it will be deducted and a refund claim needed the first time.

    Or she could just take a 25% tax free lump sum from say £40,000 of it and end up with:

    1. £10,000 tax free lump sum in her bank account.
    2. £30,000 in her drawdown crystallised account.
    3. £53,500 in her uncrystallised account.
    • Confuciusone
    • By Confuciusone 12th Mar 17, 12:02 PM
    • 16 Posts
    • 3 Thanks
    Confuciusone
    • #9
    • 12th Mar 17, 12:02 PM
    • #9
    • 12th Mar 17, 12:02 PM
    Thanks jamesd

    I understand now, what options there are, it's the scary fund selection, finding that very difficult with HL listing 2500 to chose from?
    • kidmugsy
    • By kidmugsy 12th Mar 17, 12:57 PM
    • 9,900 Posts
    • 6,677 Thanks
    kidmugsy
    If she's going to withdraw it all before her State Pension starts then there's no need to invest in funds and so on. Keep it all, or mostly, in cash.

    Maybe you could estimate how much capital will be left after the 5.5 years, including the allowance for the £2280 p.a. contributions, and invest that bit, keeping the balance in cash. That might be a decent compromise.

    P.S. remember that she can generate quite a bit of interest tax-free with her lump sum by using it in high-interest current accounts and regular savers. That might help you balance getting tax-efficient income versus sailing the oceans. If all else fails remind her of the risks of piracy, vomiting/diarrhoea infections, etc.

    P.S. has she checked how big a new-style State Pension she can expect? If it's less than the max it might be an excellent investment to top up by making extra NICs.
    Last edited by kidmugsy; 12-03-2017 at 1:02 PM.
    • Confuciusone
    • By Confuciusone 12th Mar 17, 1:50 PM
    • 16 Posts
    • 3 Thanks
    Confuciusone
    Thanks for your suggestions Kidmugsy

    Cash that's a thought, HL have no Fixed Rate Cash Offers at the moment only the variable 0.05%.

    Still think she'd choose the sailing the oceans, despite the risks

    Luckily she has just scrapped in with 2016/17 being her 35th qualifying year, after many years contracted out.
    Last edited by Confuciusone; 12-03-2017 at 1:55 PM. Reason: Error
    • Confuciusone
    • By Confuciusone 17th Mar 17, 3:57 PM
    • 16 Posts
    • 3 Thanks
    Confuciusone
    Just trying to fully understand, am I correct in thinking...

    A new Money Purchase SIPP Uncrystalised (within limits/allowances) you can make contributions as well as take ad hoc withdrawals, frist 25% of all withdrawls being tax free and 75% taxable.

    Her transferred fund, wanting to take PCLS 25% tax free, would then have to be Crystallised and become a Drawdown Fund no contributions allowed, all ad hoc withdrawals would be taxable
  • jamesd
    Under the new rules it's not really 35 years at the moment, just however many it takes to get to the maximum flat rate. So the only way to know if more years would help is to check her state pension statement.
  • jamesd
    A fund is uncrystallised until the tax free lump sum has been taken. Or until something else has been taken out or age 75. Transfer makes no difference.
    • Confuciusone
    • By Confuciusone 18th Mar 17, 2:56 PM
    • 16 Posts
    • 3 Thanks
    Confuciusone
    Thanks James

    Under the new rules it's not really 35 years at the moment, just however many it takes to get to the maximum flat rate. So the only way to know if more years would help is to check her state pension statement.
    Originally posted by jamesd
    Checked online, she's hopefully just managed to get full State Pension with this tax years NI contributions.

    Transfer makes no difference.
    Originally posted by jamesd
    She wants to transfer her Prudential Pension Fund as they only offer a choice of 9 Funds and high charges/fees.

    Thinking H & L would offer more choice, larger spread and lower charges, even investing in Prudential funds with H & L the charges/fees seem lower?
    • BLB53
    • By BLB53 18th Mar 17, 3:25 PM
    • 1,179 Posts
    • 970 Thanks
    BLB53
    Two questions really does our thinking stack up and any recommendations on trusted reputable SIPP / Flexi-Drawdown Fund providers.
    Yes, if you are OK going diy then it makes a lot of sense to transfer to a sipp.

    I use AJ Bell Youinvest for my flexi drawdown and would recommend them as would work out quite a bit cheaper than HL whether you are investing in funds or investment trusts etc.

    To compare providers have a look at the monevator comparison page
    http://monevator.com/compare-uk-cheapest-online-brokers/

    and also diy investor http://diyinvestoruk.blogspot.co.uk/2016/08/selecting-your-diy-pension-platform.html

    So far as funds etc. you could keep half in cash and invest the other half in Vanguard Lifestrategy 20 or 40 for a fairly simple option. The other route may be a basket of investment trusts.
    If you choose index funds you can never outperform the market.
    If you choose managed funds there's a high probability you will underperform index funds.
    • Confuciusone
    • By Confuciusone 19th Mar 17, 11:28 AM
    • 16 Posts
    • 3 Thanks
    Confuciusone
    Thanks BLB53, I'll have look
  • jamesd
    I use AJ Bell Youinvest for my flexi drawdown and would recommend them as would work out quite a bit cheaper than HL whether you are investing in funds or investment trusts etc.
    Originally posted by BLB53
    You may be forgetting that Youinvest charges £120 a year for drawdown while HL charges nothing.

    In the first year that's a £120 charge on £70,000 before drawing £11,500, £58,500. That's 0.205%. Platform charges 0.45% HL vs 0.25% Youinvest. So year one Youinvest combined is already more expensive at 0.455% and it only gets worse in later years as £120 becomes an ever-larger percentage of the pot value.

    Then add in the Youinvest £1.50 fund dealing charge Vs nil at HL.
    Last edited by jamesd; 19-03-2017 at 7:39 PM.
    • BLB53
    • By BLB53 19th Mar 17, 8:17 PM
    • 1,179 Posts
    • 970 Thanks
    BLB53
    You may be forgetting that Youinvest charges £120 a year for drawdown while HL charges nothing.
    No, I do not pay anything for my flexi-drawdown - just the £25 once per year for the one-off income transfer to my bank. I assume the OP would use the same route.
    If you choose index funds you can never outperform the market.
    If you choose managed funds there's a high probability you will underperform index funds.
  • jamesd
    No, I do not pay anything for my flexi-drawdown - just the £25 once per year for the one-off income transfer to my bank. I assume the OP would use the same route.
    Originally posted by BLB53
    Thanks, looking at their charges they do have that £25 plus selling costs option instead of just the higher charge mentioned in the comparison tables.

    That significantly improves the comparison, cutting the first year cost to 0.25% plus 0.045%, 0.29% combined vs 0.45%. Plus I assume only one fund sale being used.

    Year 2: £49k invested, 0.25% plus 0.054%, 0.304% combined.
    Year 3: £36.5k invested, 0.25% plus 0.073%, 0.323% combined.
    Year 4: £25k invested, 0.25% plus 0.106%, 0.356% combined.
    Year 5: £13.5k invested, 0.25% plus 0.196%, 0.446% combined.
    Year 6: allowing for personal allowance increases, just a final charge at infinite percentage this year.
    Last edited by jamesd; 20-03-2017 at 5:53 AM.
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