Pension At 50

buzz41

hi long time lurker on these forums
i would like peoples thoughts/views/experiance of taking a pension at 50
i will be 50 next september and have a personal pension with the pru
made up of contracted out and current contributions the fund on my
last statement last march was 66000 i intend to keep working to 65 if possible

thanks in advance

dunstonh

i would like peoples thoughts/views/experiance of taking a pension at 50

You dont do it unless there is a good reason.

£66k is a small pension fund (at commencement) so its not really suited to income drawdown unless you have other means. So, they would mean annuity purchase and rates at 50 are awful. You need to be in your 60s to get the best rates. If you do take the income, it will increase your taxable income.

At the moment its sitting totally tax free and with full death benefit. If you take it then you bring it into a taxable environment and your death benefit goes down.

There can be reasons to take it early but what would be your reasons?

buzz41

dunstonh wrote: »

You dont do it unless there is a good reason.

£66k is a small pension fund (at commencement) so its not really suited to income drawdown unless you have other means. So, they would mean annuity purchase and rates at 50 are awful. You need to be in your 60s to get the best rates. If you do take the income, it will increase your taxable income.

At the moment its sitting totally tax free and with full death benefit. If you take it then you bring it into a taxable environment and your death benefit goes down.

There can be reasons to take it early but what would be your reasons?

mainly finacial reasons to get out of debt
my work collegue as taken 4 small pension pot and considering a fifth
he has ended up or will if he takes the fifith with a 20grand lump sum
and a nice monthly income which he will save to he is 65
he urges me to do the same when i am 50 hence me asking the quetions.
just to add i am still paying into this pension and it it still recieving
contracted out peyments and i am also in my company stakeholder
scheme.

dunstonh

he has ended up or will if he takes the fifith with a 20grand lump sum
and a nice monthly income which he will save to he is 65

Or to word that another way. He has taken £20k out of the tax free investment and drawing a taxable income which is then going back into another investment (which wont be as tax free as a pension).

Is he doing it under income drawdown or annuity purchase? It sounds like annuity purchase by the way you describe it. It doesnt sound like open market option was used either as you combine the pensions then.

he urges me to do the same when i am 50 hence me asking the quetions.

Make sure you know where he lives so you can sue him for bad advice in the future.

Getting yourself out of debt may be a valid reason but you dont have to crystallise the whole pension (unless the debt requires it). Is the debt expensive? Is it manageable? Is it more expensive than what you will lose by taking the pension early?

just to add i am still paying into this pension and it it still recieving
contracted out peyments

You should contract in. Age 43 is the point that it is better to be in than out.

buzz41

dunstonh wrote: »

Or to word that another way. He has taken £20k out of the tax free investment and drawing a taxable income which is then going back into another investment (which wont be as tax free as a pension).

Is he doing it under income drawdown or annuity purchase? It sounds like annuity purchase by the way you describe it. It doesnt sound like open market option was used either as you combine the pensions then.



Make sure you know where he lives so you can sue him for bad advice in the future.

Getting yourself out of debt may be a valid reason but you dont have to crystallise the whole pension (unless the debt requires it). Is the debt expensive? Is it manageable? Is it more expensive than what you will lose by taking the pension early?



You should contract in. Age 43 is the point that it is better to be in than out.

thanks for the info the debt is only just manageable while we are in work,
it would make such a big difference to clear it.guess i will have to wait
and see how much the fund is at the time i am 50. my friend as simply
taken what the pension company as offered him for each pension and he
seems happy with that. am i right in saying you are taxed at source on
pensions

dunstonh

my friend as simply taken what the pension company as offered him for each pension and he seems happy with that.

No offence to your friend but that was probably the worst option to take out of all the options he had. He may be happy with it but that is probably because he is ignorant of the options available. Had he known the options, he would have almost certainly gone with one of those. This is why you have to be careful from following what he has done.

am i right in saying you are taxed at source on
pensions

yes.

the debt is only just manageable while we are in work,
it would make such a big difference to clear it.

It could well be worth looking at then. However, you will be reducing your retirement benefits so make sure you use a good amount of the money saved to make up for that. If you do, then dont take what the current pension provider offers you. That is the option that usually produces the lowest amount.

jamesd

In the event that you do decide to do this, the least damaging way is probably to take the 25% tax free lump sum and to leave the rest invested in "income drawdown" but not taking an income, instead leaving it growing until you do actually retire.

The next least bad option, but still likely far worse, is to use the "open market option" to get the best available annuity income from the whole market. It's a job that most IFAs will do with no net cost to you, since they are paid commission that would otherwise go to the insurance company itself.

The worst option is to just take whatever your own insurer offers. They are often uncompetitive, offering less money than available elsewhere. It's for this reason that it is mandatory now for them to tell people about the open market option when they retire, to reduce the damage done to long-term income.

But instead of doing any of these things please say more about the debts, income and expenses you have to see if there are opportunities to improve things on that side of the picture. A list of each with amounts, interest rates and roughly how long to go until paid off would be very helpful. You might also want to visit the debt-free wannabe section and post a statement of affairs there to get suggestions on ways to save money and debt financing costs. It's very likely that there's a solution that will do you less long term harm than taking any of the pension money.

Now is also a particularly terrible time to be taking money out of pensions, with stock markets at very low levels reducing the payouts greatly. Your valuation is probably very much above what the value is today and it'll take several years for it to recover.

averageguy11

Duns..y is it so bad to take inc drawdown on tht sum?

dunstonh

Duns..y is it so bad to take inc drawdown on tht sum?

When someone has a limited retirement provision, it you put the plan into income drawdown, you are leaving it invested. They view of the FSA is that they cannot afford to have their retirement income subject to investment return fluctuations.

That is the general starting point on small fund values. However, they would accept a valid and justifiable reason for doing it on a small fund. So, its not a 100% rule.

Looking at this thread, what the OP's friend did was probably the worst option and drawdown would have been better. Debt clearence could be a totally justifiable reason for doing it and given the choice between drawdown and annuity purchase at age 50, I know what I would prefer.

buzz41

dunstonh wrote: »

When someone has a limited retirement provision, it you put the plan into income drawdown, you are leaving it invested. They view of the FSA is that they cannot afford to have their retirement income subject to investment return fluctuations.

That is the general starting point on small fund values. However, they would accept a valid and justifiable reason for doing it on a small fund. So, its not a 100% rule.

Looking at this thread, what the OP's friend did was probably the worst option and drawdown would have been better. Debt clearence could be a totally justifiable reason for doing it and given the choice between drawdown and annuity purchase at age 50, I know what I would prefer.

after reading replies i understand that taking what the pension company offers
is the worst of all options but i tell you he is more than happy with what
he is getting. duns what would you prefer???

dunstonh

buzz41 wrote: »

after reading replies i understand that taking what the pension company offers
is the worst of all options but i tell you he is more than happy with what
he is getting. duns what would you prefer???

At 50, annuity rates are rubbish. They really are. So, unsecured pension is better as you delay the purchase of an annuity until you are older and can get a better rate.

If that option doesnt appeal then open market option is the next thing. You nearly always get a better rate than your existing provider.

He is only happy because he doesnt realise how much he has lost out on. Don't make the same mistake.