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Pension - How Long will it last
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# 1
masonj3
Old 06-04-2008, 4:13 PM
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Default Pension - How Long will it last

Hi

Im new to the site and a complete pension novice so apologies if this has been covered before.

My dad is 62 and suffers from ill health and no longer works, He is in receipt of high rate disability benefits and long term incapacity. Prior to becoming ill he was self employed and has a private pension plan which is linked to stocks and shares.

He is considering taking his pension soon but as expected we have one or two queries.

If for example his pension plan fund was 100k and he took a 25% lump sum now aged 62 then he would have 75k left in the pension fund and would receive his pension payments from this fund. What Im not sure is if he lives for a very long time, what would happen after the 75k has been paid out??

Would he then just receive his disability benefit and state pension or do personal pensions pay out until death??

Hope all of this makes sense and thanks to anyone who may be able to help with this x
Jem
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# 2
dunstonh
Old 06-04-2008, 4:39 PM
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Quote:
What Im not sure is if he lives for a very long time, what would happen after the 75k has been paid out??
He will almost certainly qualify for enhanced annuities based on his health. So it is vital he sees an IFA and not just accept the figures from the insurer (which will be standard health).

The income pays out for the rest of his life.
I am a Financial Adviser. 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.
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# 3
masonj3
Old 06-04-2008, 4:48 PM
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Thank you Dunstonh - so you would recommend for him to see an IFA and purchase and ill health annuity. My dad has some mental health probs but is able to control his affairs do you know if an IFA would be able to just give me the initial advice re his options for me to discuss with my dad before he makes a decision?

Finally just to confirm my dads personal pension plan will pay out until he dies even if for argument sakes he lived another 40+ years??

Cheers x
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# 4
bryanb
Old 06-04-2008, 4:54 PM
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Regarding disability benefit, his award letter should tell him how long DLA is payable for.
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# 5
masonj3
Old 06-04-2008, 4:58 PM
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Quote:
Originally Posted by bryanb View Post
Regarding disability benefit, his award letter should tell him how long DLA is payable for.

Thanks Bryanb - his DLA is for an indefinite period. What I meant was would the personal pension pay out until death or until the 75k ran out, just didnt word it very well lol x
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# 6
dasherman
Old 06-04-2008, 7:15 PM
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The personal pension would be paid out until your father passes away,whatever age that is.
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# 7
firesidemaid
Old 06-04-2008, 7:26 PM
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i know you can claim dla, but can you claim incapacity benefit if you have another income eg. personal pension?
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# 8
seven-day-weekend
Old 06-04-2008, 8:30 PM
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You can claim IB if you have other income, but if your income from a Pension is over £85 per week, the IB will be reduced by 50p in every £1 over that amount.

No other income or amount of savings will have any effect upon IB.

The following extract from the link below may help:



Pension Income
If you make a new claim for Incapacity Benefit we may take any pension income over £85 a week into account when we work out how much money you are due.
If your pension income increases or decreases you must tell us straightaway as this may affect the amount of Incapacity Benefit you get.
By pension income we mean one of the following pensions
  • occupational pension
  • personal pension
  • public service pension
  • stakeholder pension
  • a pension from a self-employed pension scheme
  • permanent health insurance payments arranged by an employer and the contract of employment has ended
  • pension protection fund payments due to employer insolvency.
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Last edited by seven-day-weekend; 06-04-2008 at 8:35 PM.
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# 9
dunstonh
Old 06-04-2008, 10:25 PM
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The IFA will deal with you. Indeed, given his mental health issues, it would be in the IFAs best interests to have you involved fully as well.
I am a Financial Adviser. 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.
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# 10
masonj3
Old 07-04-2008, 9:30 AM
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Quote:
Originally Posted by dunstonh View Post
The IFA will deal with you. Indeed, given his mental health issues, it would be in the IFAs best interests to have you involved fully as well.

Thanks everyone for you advice etc. My dad does get Incapacity benefit at the moment. One thing we have found out though is that if he takes his personal pensions at the moment whilst claiming IB then because he is on the higher rate of care for DLA he is actually exempt to any deductions on his private pension {the anything over 85 rule as posted by seven - day weekend}.

No doubt will be back with more questions soon.
Cheers x
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# 11
EdInvestor
Old 07-04-2008, 2:52 PM
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Quote:
Originally Posted by masonj3 View Post
What I meant was would the personal pension pay out until death or until the 75k ran out..

What usually happens is that the 75k is used to purchase a product called an "annuity".The annuity pays a guaranteed income for life.Once you have purchased the annuity, the capital has gone to the insurance company.

There is another product called "income drawdown". This involves investing the 75k and taking an income from the fund.The idea is that the fund increases in value over the long term and pays a higher income.

Although there is a risk that an income drawdown fund could "run out", it's very unlikely, because if the fund was depleting,the amount of income you could take would be reduced. This is the risk.A review of the fund happens every 5 years.

With income drawdown you retain the capital in the fund and should the person die early, the remaining money can be returned to the family after a 35% tax deduction.

Most people who suffer from ill health choose either an "impaired life" annuity or income drawdown, both of which can pay a higher income than a conventional annuity.


You can get an idea of ordinary annuity rates here:

www.fsa.gov.uk/tables

Expect to get more than that.
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