Annuities and my special circumstances

Charity_Dalek

I have posted a couple of times about pensions, but I suppose this is the ultimate question(s).

So I am 52, my wife is 47 and we are both in employment. My current pension pot is today valued at £147000. I have cash reserves above that of my pension pot.

I understand from the pensions forecasting service that we will both be eligible for the state pension.

I am scheduled to retire at 60 and that’s when my company pension becomes available to me, but I understand that I don’t have to take it then.

I need some advice on annuities and the best type that I should consider. I appreciate that this is a while away, but I like to forward plan.

The twist to this tale is that I have a medical condition and may just make it to 60, but then again it might be before or just after.

With this in mind which would be the best way to go with the annuity and actual timing:

• Should I take the annuity at 60 or take it latter. I don’t need the money from the pension for a few years.
• What happens to the pension pot if I die before I turn it into an annuity? Does it automatically go to my wife upon my death at 100%?
• If I take the annuity at 60 then what type of annuity should I take, just me, both or just my wife’s name.
• Sould I take the 25% lump sum? I don't need the cash.
• Should I consider Guarantees?

I hope I have given sufficient information on this occasion.


Regards

Robert

dunstonh

Should I take the annuity at 60 or take it latter. I don’t need the money from the pension for a few years.

Generally, if you dont need it, you dont take it. However, there can be exceptions to that.

What happens to the pension pot if I die before I turn it into an annuity? Does it automatically go to my wife upon my death at 100%?

Tax free payment to your nominated beneficiary.

If I take the annuity at 60 then what type of annuity should I take, just me, both or just my wife’s name.

If health is an issue, then you should get spouse included and/or a long guarantee period or value protect the annuity.

Sould I take the 25% lump sum? I don't need the cash.

Will your wife need it on your death to provide her an income? Will the income on your annuity on joint terms be higher than what can be provided from a lump sum?

Should I consider Guarantees?

yes

EdInvestor

You could also consider income drawdown rather than an annuity. This enables you to keep the capital of the fund invested while drawing an income (between zero and 120% of the annuity rate). Instead of losing your capital, if you were to die soon after, your wife could take the whole of the remaining fund outside your estate minus 35% tax.

Charity_Dalek

dunstonh

Thank you for your reply.

Generally, if you dont need it, you dont take it. However, there can be exceptions to that.
What are the exceptions, are they relevant in my case, as far as you know?

Tax free payment to your nominated beneficiary.
So does the whole pension pot get handed over to my wife? Is it better for her to have a lump sum rather than a pension? Does the lump sum become availble to her upon my death?

If health is an issue, then you should get spouse included and/or a long guarantee period or value protect the annuity.
Can you get 100% for your wife in this case? How long for the guarantee period? What does the guarantee period do?

This appears to have opened a lot more questions.

Thanks

Robert

Charity_Dalek

EdInvestor

How does the layman know which is the right way to go - Annuity or Drawdown?

Thanks

Robert

EdInvestor

Charity_Dalek wrote: »

EdInvestor

How does the layman know which is the right way to go - Annuity or Drawdown?

Thanks

Robert

There is no "right" way to go - it will always be a matter of personal circumstances. To my mind where there are health concerns, it is best to remain as flexible as possible, avoid locking into predetermined outcomes.

So in order of preference this would be

1.Leave the pension as is so your wife can have 100% of it tax free if you go earlier than you expect.This is a huge saving and if she wanted an annuity she would get a much better income this way than if you tried to sort it out in advance

2.Vest the pension into drawdown, keeping tax free cash aside to boost your wife's income later. This way she would have 90% of the capital from the pension free of tax..

3.Vest the pension into an annuity with the best guarantee/value protection you can find.But IMHO this is a much worse course of action than the other two.

dunstonh

What are the exceptions, are they relevant in my case, as far as you know?

its possible. It would really depend on your medical condition and what your other finances are, along with your spouses provisions.

So does the whole pension pot get handed over to my wife? Is it better for her to have a lump sum rather than a pension? Does the lump sum become availble to her upon my death?

If you havent taken any benefits, the whole lump sum is paid to her. She can then use it to buy an income partly or fully or whatever is right at the time. A bit of an irony is that to get the most out of a pension, it is best to die the day before you retire!

Can you get 100% for your wife in this case? How long for the guarantee period? What does the guarantee period do?

You can get 50%, 66% , 75% and 100% spouse income. The conventional guarnatee periods are 5 or 10 years. With a 100% spouse, they are not really needed. There is also value protect which gives a guarantee upto age 75 if you dont draw an income that ends up being more than your pot, the difference is paid out (minus a tax charge).

How does the layman know which is the right way to go - Annuity or Drawdown?

Like anything you dont know you either take a punt at DIY or you get advice. It is a once only chance though with a lot of these decisions. Get it wrong and you cant undo it. So, if you dont know, dont risk DIY.

Charity_Dalek

Thank you for the replies todate.

So in summary:

• Get professional advice nearer the time.
• If I can afford to live by other means at 60 then I should not touch the pension pot. Then upon my actual death the pension pot will be past to my wife as a lump sum.
• Drawdown is also a possibility but I need to research this.

Finally, if I wanted to take a pension at 60. Can I put the pension 100% in wife’s name? But I suspect that the annuity rates will be quite low because she will only be 54. Is that right?

EdInvestor

Charity_Dalek wrote: »

Finally, if I wanted to take a pension at 60. Can I put the pension 100% in wife’s name?

No, but you can buy a 100% spouse's pension which amounts to the same thing and will be based on her age, as you suspect, and thus will be low.

This is why you should IMHO consider drawdown where you can draw the max income while you are around to enjoy it, and then your wife can convert the pot to an annuity later when she is older and can get better value.

dunstonh

Finally, if I wanted to take a pension at 60. Can I put the pension 100% in wife’s name? But I suspect that the annuity rates will be quite low because she will only be 54. Is that right?

Actually, spouse age doenst have the size of impact you think it would. Plus, your health would be taken into account as well and that would push the annuity rate up using an enhanced or impaired annuity.

Charity_Dalek

dunstonh wrote: »

Actually, spouse age doenst have the size of impact you think it would. Plus, your health would be taken into account as well and that would push the annuity rate up using an enhanced or impaired annuity.

I just checked:

For me at 60 Single Life - £542pm per £100000

For wife at 55 Single Life, Smoker - £546pm per £100000

I thought taking the pension at 55 would have made a considerable difference.