Pension fund 25% cash drawdown

p1an0player

The title of the thread is "Pension fund 25% cash drawdown"

For the sake of clarity, I think it's worth pointing out that drawdown isn't the correct term for taking the 25% PCLS (lump sum).

When the PLCS is taken, the customer can either:

a. buy an annuity straightaway with the remaining 75% of the fund, or
b. put that 75% of the fund into income drawdown, without ever needing to buy an annuity with that money

dunstonh

If you look at the threads stickied at the top of this forum, the one on SIPPs has attracted almost 40,000 viewers and the one on Income Drawdown has been read by nearly 36,000 people. Both these threads include a range of points of view on the subject.

Doesnt mean the transaction would be right for those viewing.

Many people want to know the most cost-effective way to manage their retirement income and/or to get the 25% tax free cash which they are now allowed to take out of their pension fund if they are aged 50 or more.

So, why are you presenting one of the expensive ways as the cheapest?

If advisors posted the full range of options, rather than just the ones where they can charge fees, it might be less necessary for others to point out alternatives.

Advisers can earn from SIPPs or the other options. A fee based or hybrid fee adviser would have no "perceived" bias to any option. Both IFAs contributing to this thread are either fully fee or mostly fee/hybrid fee based. Plus, we dont earn anything from these threads. So, trying to present it as a bias for income reasons is wrong.

Just today its come out that the FSA are investigating SIPP recommendations because they are concerned that SIPPs are being overused when other options are cheaper and better. The FSA can only review what adviser firms are doing. They cannot review what consumers do themselves. However, any consumer should look at what the FSA say about SIPPs and realise that just because they are not getting advice, doesnt mean they should ignore the warnings about SIPPs being unsuitable.

whiteflag_3

EdInvestor wrote: »

If advisors posted the full range of options, rather than just the ones where they can charge fees, it might be less necessary for others to point out alternatives.

But its you who, whenever a poster suggests an interest in drawdown, says "youll need a SIPP".

As Dh points out correctly, we've got no interest what people use. Its the fact that you only ever mention SIPPS that is missleading and should be corrected.

Do us a favour and try to start bringing a bit of honesty and integrity to these forums in your posts from now on. Im pretty sure anyone reading the stickys can work out pretty quickly that you've got a vested interest in promoting SIPPs and youll say anything to hide it.

_macca_2-2

Now I know I might get a grilling from the advisers on the forum for saying this but it is an option.

If you are going to be comfortable in retirement and are only looking for the tax free cash you could reinvest the income which the drawdown plan offers, this allows you to build up another pot of tax free cash for a few years time. The regulator does not allow the recycling of the tax free cash itself but it does allow you to reinvest the income.

Another benefit from doing this is that any funds that are reinvested into the new pension fund provider greater death benefits compared to the money sitting on hold in drawdown

100% in pension V's 65% in drawdown.

Again something you may wish to consider.

But bear in mind you are stripping you pension so its certianly not for everyone.

EdInvestor

_macca wrote: »

If you are going to be comfortable in retirement and are only looking for the tax free cash you could reinvest the income which the drawdown plan offers

Drawing the income and paying the tax on it (assuming you don't end up in a higher tax bracket) can indeed be sensible, but it may be better to reinvest in in a maxi ISA so the capital remains accessible and both it and the income remain tax free.

EdInvestor

I see the FSA has come out with a report lashing IFAs for misselling SIPPs so as to get high commissions.

The average Sipp plan is worth between £50,000 and £100,000 - making this market worth some £50bn. With advisers earning between 3pc and 7pc for each transfer made, this equates to an upfront payment of £7,000 for each pension moved.

You can see why I recommend proceeding on a DIY basis, especially if the aim is simply to access the tax free cash. :rolleyes:

Telegraph

dunstonh

I see the FSA has come out with a report lashing IFAs for misselling SIPPs so as to get high commissions.

Not quite what it has said. The FSA is writing to a number of companies with high quantities of SIPP sales to do file checks to see if the advice was correct or not and address it where it isnt.

Key to the FSA points wasnt just if the transfer was suitable but whether cheaper personal pensions and stakeholder pensions should have been used. The very point that we have been making on this forum for years and have been making here.

You can see why I recommend proceeding on a DIY basis, especially if the aim is simply to access the tax free cash. :rolleyes:

Ed gets 5 from 2+2. If you dont use an IFA, companies like HL just keep the commission from the funds for themselves. These DIY companies arent in it for love. HL make between 0.5%-0.75% p.a. on the fund value. So, taking a term of say 20 years and ignoring compounding and future growth they make 10-20%.

So, in a DIY sipp your annual charge is 1.5% typically but on a full commission insurance company drawdown you can get 1%. On a fee basis drawdown you can get 0.5% (possibly better). The cheapest option is to go fee basis with an IFA.

EdInvestor

dunstonh wrote: »

The cheapest option is to go fee basis with an IFA.

Of course that's why the FSA is checking into IFA misselling of SIPPs due to the thousands of pounds they charge in upfront commission.You wont pay this commission if you use a low cost execution only broker.Nor will you pay an annual fee.

If you choose low cost investments such as investment trusts and exchange traded funds (like trackers) - none of which IFAs will tell you about, because they are not authorised to advise on them - then you can get a much cheaper deal, with no upfront commission, no annual fee and 0.5% or less in fund costs.

It's not rocket science.

dunstonh

Of course that's why the FSA is checking into IFA misselling of SIPPs due to the thousands of pounds they charge in upfront commission.You wont pay this commission if you use a low cost execution only broker.Nor will you pay an annual fee.

Read the post will you and stop spreading lies. Since when does a fee based adviser keep the commission?

The only option more expensive than what Ed is recommending is to use a full commmission adviser recommending a SIPP. Nowhere on this thread or others have you found Whiteflag or myself say that is the best option. For funds, the cheapest option here will be to use a fee based IFA. Far cheaper than HL's SIPP for example.

Of course that's why the FSA is checking into IFA misselling of SIPPs due to the thousands of pounds they charge in upfront commission.

That isnt the reason they are checking. On their sample, they found a 16% failure rate on the advice. Whilst 16% is high by todays standards, that still means that 84% of the advice was good. They have also stated that the spread of the failure rate was variable. In other words, it appeared that some companies were far more than 16% and others were far less. That would match what most in the profession already know. Some companies have been putting everyone into SIPPs whilst others only use it when best.

If you choose low cost investments such as investment trusts and exchange traded funds (like trackers) - none of which IFAs will tell you about, because they are not authorised to advise on them - then you can get a much cheaper deal, with no upfront commission, no annual fee and 0.5% or less in fund costs.

Has the OP shown any indication that she is willing to use direct investments? The knowledge, the ability to understand and the willingness to keep under review or to pay the dealing fees every time there is a transaction?

There is certainly merit to this option but it also has potential negatives as well.

jamesd

Lady and gentleman, perhaps it would be worth comparing the costs of the Norwich Union drawdown with the alternatives for the range of investments this poster wants to continue to hold?

Here's where I note that in the two cases I've compared, one of them my nil commission workplace pension, I've found that Hargreaves Lansdown was the less expensive way to hold the desired investments. In the workplace one that is due to fixed costs that make it uneconomic for my fund size. And there's another part of the workplace one that I am using because that has lower costs than Hargreaves Lansdown for the investments I'm holding in it.

So lets look at the facts of this specific case and give the person asking the question some proper specific information on costs for their investments.