Taking pension entitlement early to reinvest

MikeJones_2

Hi pennyunwise,

If you don't mind bearing with me on this one.

I gather you have actually taken the pension on an early-payment basis? Did you take professional advice or act on your own?

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser.

dunstonh

Now we see the thread heading in a new direction thanks to that clarification. Assumptions were made it was money purchase.

pennyunwise

MikeJones wrote: »

Did you take professional advice or act on your own?

I used the website link advertised on this site to find an IFA specialising in retirement planning and discussed it with them. After the initial meeting where they took details and sought permission to contact pension provider they called me back to go through a variety of pension projections and at the time it all seemed to add up. The end comment from the IFA was that 'if it was them they'd take the early payment option.'

As a result I did take early payment option.

MikeJones_2

Hi pennyunwise,

pennyunwise wrote: »

After the initial meeting where they took details and sought permission to contact pension provider they called me back to go through a variety of pension projections and at the time it all seemed to add up.

Thanks for the clarification of the points that I raised. The advice is unusual given what you have now confirmed so far and without knowing more about the advice process that took place, but the fact that it is unusual (in my opinion, anyway) does not in itself make it wrong.

If you don't mind me asking these follow-up points, I wouldn't mind knowing the answers.

1. Did you receive a Reason Why Letter from them?

2. If 'yes' to 1. above, did you follow the recommendation(s) made in that Reason Why Letter?

3. Did they do a Transfer Value Analysis (called 'TVAS' for short by financial services people)? This is where the IFA, with your permission, contacts your pension scheme, obtains a 'transfer value' and compares the benefits you have got if you remained with your scheme both at your Normal Retirement Date and your chosen Early Payment Date against benefits you would have received if you transferred to another pension arrangement (such as a Personal Pension Plan or Section 32 Buyout)?

4. Do you have a spouse and/or dependants?

I ask these questions because your initial thread asked "is this a good idea?" to the situation you presented us with. At this juncture, I am still unable to answer that.

If you want me to drop the questions, please feel free to say so and I'll delete this particular post.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser.

EdInvestor

I am assuming that UKpennywise has taken early retirement from her original scheme and has received a tax free lump sum and an ongoing pension from that scheme.I am assuming she did not transfer the entire pension fund (ie all the money) out to a different pension scheme first. Is that correct?

So she now wants some guidance on how to reinvest the tax free lump and the reduced pension payments she is receiving which she doesn't yet need to live on, such that when she does eventually retire the income payable from the smaller pension and the additional pots of money exceeds what she would have received if she had delayed taking the pension until her normal retirement date.

Is that also correct?

pennyunwise

EdInvestor wrote: »

I am assuming that UKpennywise has taken early retirement from her original scheme and has received a tax free lump sum and an ongoing pension from that scheme.I am assuming she did not transfer the entire pension fund (ie all the money) out to a different pension scheme first. Is that correct?

So she now wants some guidance on how to reinvest the tax free lump and the reduced pension payments she is receiving which she doesn't yet need to live on, such that when she does eventually retire the income payable from the smaller pension and the additional pots of money exceeds what she would have received if she had delayed taking the pension until her normal retirement date.

Is that also correct?

Correct on both counts

pennyunwise

MikeJones wrote: »

Hi pennyunwise,



Thanks for the clarification of the points that I raised. The advice is unusual given what you have now confirmed so far and without knowing more about the advice process that took place, but the fact that it is unusual (in my opinion, anyway) does not in itself make it wrong.

If you don't mind me asking these follow-up points, I wouldn't mind knowing the answers.

1. Did you receive a Reason Why Letter from them?

2. If 'yes' to 1. above, did you follow the recommendation(s) made in that Reason Why Letter?

3. Did they do a Transfer Value Analysis (called 'TVAS' for short by financial services people)? This is where the IFA, with your permission, contacts your pension scheme, obtains a 'transfer value' and compares the benefits you have got if you remained with your scheme both at your Normal Retirement Date and your chosen Early Payment Date against benefits you would have received if you transferred to another pension arrangement (such as a Personal Pension Plan or Section 32 Buyout)?

4. Do you have a spouse and/or dependants?

I ask these questions because your initial thread asked "is this a good idea?" to the situation you presented us with. At this juncture, I am still unable to answer that.

If you want me to drop the questions, please feel free to say so and I'll delete this particular post.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser.

I'll send a private message to you with the details you have requested.

jamesd

pennyunwise, earlier you wrote that you didn't think that using a stocks and shares ISA would be a good idea at the moment. This suggests that you didn't know that you can keep cash in there and get a reasonable rate of interest, taxed at 20%, or hold a wide range of investments other than stocks and shares, including things like UK government bonds or funds that hold saving accounts and pay you the interest as dividends.

So long as you are investing this money in some way, including those I've given above, it's almost certainly in your interest to use your full 7200 ISA allowance every year until all of the money is in one or more ISAs. You may prefer to use the maximum 3600 cash ISA allowance this year and if you want to be extremely cautious you might ask about very low risk options in S&S ISAs, including the option of taking interest.

You definitely should continue to work with MikeJones because if the IFA you used did not do everything properly, with proper valuations of future pension benefits, you might have suffered a significant financial loss that you aren't aware of yet. Ideally, and hopefully, the IFA did provide detailed calculations and reasons why this was the best choice for you. It certainly is possible that it is, just can't tell yet.

If you use savings accounts for more than a short time (a year or so) you're almost certain to be worse off than if you'd waited, unless you had to have the income today.

You asked earlier about tax on pension income. The pension income (but not the lump sum) is added to all of your other income and taxed at whatever rate applies.

So if you're still working it'd probably all be taxed at basic rate. In that case it'd also be fairly likely that you have lost pension value by taking the pension early, due to the extra tax you pay now but wouldn't have to pay in the future because of the reduced earnings after stopping working. This analysis of tax effects is something that the IFA should have done and explained also.

There's no need to be worried right now. Just letting you know a bit of background to why MikeJones is asking the questions, so he can make sure that it was all done properly and you made a fully informed decision. None of us ,except perhaps MikeJones now, has enough information to know if it was properly done or not.

EdInvestor

pennyunwise wrote: »

The problem I now have is what I can legally do with the tax free £26000. I've spent the last 2 weeks reviewing savings comparison sites and am getting frustrated that I can't simply be able to make an informed judgement. I plan to put the £26k into a fixed term savings account for 1 year and then review what I can do with it next year.

Have a look at National Savings index linked cerificates. They pay interest based on the rate of inflation plus 1% and the payment is tax free.You don't take income from these certs - you stash it away for 3 or 5 years and then get the money back at maturity.There are 2 issues a year, 3 year and 5 year and you can put up to 15k in each. Obviuously they are Govt guaranteed. The rate of return is aover 6% for basic rate taxpayers and over 8% (IIRC) for HRT. Very useful if you don't need income.

The taxed pension payment of ca£250 per month is to go into an ISA but whether that should be Stocks & Shares given the current state of affairs or cash goodness only knows.

I agree you should take out the full 7,200 ISA, using part of the lump sum as well as the taxed pension money.Put half in cash and the other half in S&S. If worried about the market choose a gilt or bond fund.

Retired_I.F.A.

Here we are twelve days into this thead and advice is being thrown around left right and centre yet still no one has got a complete picture of the issue.

If pennyunwise does not post again there's £5 here that says in another twelve days she'll be told how to feed her cat so that it's urine does not ruin the alloy wheels of her neighbours car..:rolleyes: