Which pension route

dunstonh

Just to clarify, are you saying that her small pension fund of around £15,000, at age 68 she could get a 12-15% guaranteed annuity?

No. At 75 she would be looking at 9% on the existing pot on single life basis.

I was looking at new money into the pension.

She can pay £3600 a year into the pension. Thats a net contribution of £2880. She can do that every year upto 75. If she then commences a single life annuity (she doesnt need joint) then if we totally ignore growth that £3600 @ 9% = £324 a year. £324 is 11.25% of the net contribution. She can chose to take back 25% of the fund value. So, that brings the £3600 down to £2700. £2700 @9% = 243 a year. That is 12.27% of the net contribution (£3600 minus tax relief minus 25% lump sum gives net effective cost of £1980). If she has any medications at 75 (can be just high blood pressure and high cholesterol for example) then the rates will be higher still.

£3600 doesnt sound like a lot but with 6 years to go and the existing pot of £16k then it comes up to £37,600. Ignoring growth again, then 9% of that is £3384 a year.

Utilise the full S&S ISA allowance each year for her using higher yielding investments (with income reinvested whilst she doesnt need it) and thats a pot of £61,200. Again ignoring growth and getting 5% gives you £3060 a year. (yields are actually higher than 5% at the moment but 5% is a safe figure to use)

Those two simple things bring in over £6400 income a year. Add her state pension and you are getting somewhere towards a steady income without being reliant on your money.

I'm not saying these are the only things you can do or if they are best for you. You are never going to get the required detail on a forum to go through all the options. I'm just throwing ideas into the hat.

EdInvestor

The pension mentioned is similar to the IVP I mentioned earlier. It's an option.Also worth looking into is a purchase life annuity bought for cash (not from a pension fund).These annuities have much better tax treatment than ordinary annuities (you are not taxed on the part of the income payment which represents your capital being returned to you) and can be a very good deal for older people.

Have you talked to your wife about the question of income vs capital?

One sometimes finds that women are less interested in trading in capital for income than men are, preferring to keep hold of the cash.

She could for instance take her 15k pension wholly in cash, assuming it's the only non state pension she has, under the trivial commutation rules.Would she prefer that?

SeniorSam

EdInvestor wrote: »

The pension mentioned is similar to the IVP I mentioned earlier. It's an option.Also worth looking into is a purchase life annuity bought for cash (not from a pension fund).These annuities have much better tax treatment than ordinary annuities (you are not taxed on the part of the income payment which represents your capital being returned to you) and can be a very good deal for older people.

Have you talked to your wife about the question of income vs capital?

One sometimes finds that women are less interested in trading in capital for income than men are, preferring to keep hold of the cash.

She could for instance take her 15k pension wholly in cash, assuming it's the only non state pension she has, under the trivial commutation rules.Would she prefer that?

EdInvestor .........

That's another interesting thought to ponder even though my dear wife is happy to go along with what I eventually suggest.

However, a single level annuity is at least guaranteed, but if she turned the pension into cash and used that, or other cash to but the IVP, she should be better off if I understand you correctly. Certainly worth considering, so thanks again.

One point I am not clear on with my SIPP, although I have not asked the question of anyone before, having built a fund within a Sipp from other personal pensions, can I simply move ahead with Drawdown/T.F.Cash or Phased drawdown with the present company, or another without additional costs? Or what costs are typical?

I really haven't grasped that part but having paid a lot to transfer fees to set up the pot and grow it until now, having reached the point of using the 'pot' , are there additional charges for taking the pension. Not Clear.

Thanks

Sam

EdInvestor

Who is your SIPP provider?

SeniorSam

EdInvestor wrote: »

Who is your SIPP provider?

EdInvestor.

Set up with Friends Provident and James Hay, but not sure how they compare with others?

Sam

EdInvestor

Here's a list of the charges at Sippdeal,including drawdown(USP) set-up.

http://www.sippdeal.co.uk/charges.aspx

www.h-l.co.uk would be another provider worth checking out.

With both of these you can move immediately to drawdown/tax free cash, incurring just the set-up charge.

Historically James Hay operated via advisors so may be more expensive.No idea about it's drawdown charges.

Here are the charges on their E-SIPP.They are high.

http://www.jameshay.co.uk/DocumentView.aspx?DocumentID=261&DocumentRef=MAN0255

If anyone tries to charge you 3% of your fund or more to flog you a drawdown, head in the opposite direction as fast as possible.
Drawdown and SIPP transfers are easy to set up, no need to pay anyone.

SeniorSam

EdInvestor wrote: »

Here's a list of the charges at Sippdeal,including drawdown(USP) set-up.

http://www.sippdeal.co.uk/charges.aspx

www.h-l.co.uk would be another provider worth checking out.

With both of these you can move immediately to drawdown/tax free cash, incurring just the set-up charge.

Historically James Hay operated via advisors so may be more expensive.No idea about it's drawdown charges.

Here are the charges on their E-SIPP.They are high.

http://www.jameshay.co.uk/DocumentView.aspx?DocumentID=261&DocumentRef=MAN0255

If anyone tries to charge you 3% of your fund or more to flog you a drawdown, head in the opposite direction as fast as possible.
Drawdown and SIPP transfers are easy to set up, no need to pay anyone.

EdInvestor.....

I do appreciate this information and will get comparing these and the present providers before deciding to take action.

I expect there are a lot of people out there who have Sipps and be unaware of the action to take when they are ready to start using the pension pot.

This site and people like yourself and others who have replied are a breath of fresh-air to the uninitiated and uninformed. Thanks again

Sam

dunstonh

I expect there are a lot of people out there who have Sipps and be unaware of the action to take when they are ready to start using the pension pot.

Yes. The FSA is very concerned about this and is taking action against companies that have set up SIPPs for people that are not experienced investors or using a managed advice service.

EdInvestor

When starting to use the pension pot, the actions to take are the same whether you have a SIPP, a personal pension or a stakeholder.You still have to decide whether or not you want to buy an annuity, do drawdown, or a mix, ie phased drawdown - as we have been discussing.

The difference is that if you want to opt for drawdwon or a mix, it is much easier if you are already in a SIPP -indeed the switch to drawdown is usually seamless if so.There is no need to do anything to your investments, no transfers, no delays, no losses due to being out of the market. Instead of making contributions into the SIPP, effectively you just reverse the procedure and start drawing money out.The provider simply needs to value the SIPP and tell you the maximum income you can draw.

It's hard to see why this should cause any concern.

SeniorSam

EdInvestor wrote: »

When starting to use the pension pot, the actions to take are the same whether you have a SIPP, a personal pension or a stakeholder.You still have to decide whether or not you want to buy an annuity, do drawdown, or a mix, ie phased drawdown - as we have been discussing.

The difference is that if you want to opt for drawdwon or a mix, it is much easier if you are already in a SIPP -indeed the switch to drawdown is usually seamless if so.There is no need to do anything to your investments, no transfers, no delays, no losses due to being out of the market. Instead of making contributions into the SIPP, effectively you just reverse the procedure and start drawing money out.The provider simply needs to value the SIPP and tell you the maximum income you can draw.

It's hard to see why this should cause any concern.

EdInvestor...........,

Sounds good to me. I have just e-mailed the provider to let meknow what charges are applicable if I go to either TFC & Drawdown or Phased Retirement route.

I will let you know what I hear ....... just to spread the word!

Thanks again, and to dunstonh. Perhaps the FSA's concern is that some IFA's are not too bothered once they have earned initially.

I'll be back soon.

Sam