twist or stick

David_Hoffman

I'm pretty ignorant of things financial.

I've bought about ten single premium pensions over the last 25 years, mostly by guesswork. Five of them have a retirement age of 60 which will be on 4 June 2006, three of these (Norwich Union, Scottish Mutual & Scottish Widows) have a GAR of around 10%. There's also one with Equitable life but I think the GAR on that is smoke.

My IFA advises me that I do not need to take these pensions now and that I should defer them for one year every year until I do need them. That might make sense for the non GAR funds (though I am unsure as to implications re MVAs if I change the date) but it seems to me that taking the whole of the fund as an annuity at about 10% must be a better decision as there is no way that the fund can grow at that rate. The IFA doesn't reply to that question.

I think I need to take the guaranteed annuity offered by the three above at the first opportunity. The other two (non GAR) are Equitable Life and Standard Life and I'm planning to take the full fund from both of these and buy the best annuity I can find with it. I'm reasonably healthy, single and working. Does this make sense?

Where would I go to find a good deal on annuities?

Thanks in advance for any help.

David Hoffman

EdInvestor

Hi David

It's possible to lose valuable GARs if you don't exercise them on the contractual retirement date,and also to find MVAs reimposed, so I agree it's sensible to take those 3 pensions on the appropriate date, as 10% is very hard to beat without taking undue risks.

With the others, to avoid any problems with MVAs, then you could also take benefits, but if you don't need the income just yet (it's taxable) you could move the pensions in to a SIPP, and thence into income drawdown ( aka unsecured pension - USP).There the money would remain invested without you needing to take an income, until you want to retire, or need the extra income. You could take some or all of the tax-free cash now (phased drawdown), or leave it till later.

"Good deals" and "annuities" might be regarded as somewhat of an oxymoron these days

It might be more sensible not to go for the annuities on the non GAR pensions now, as you will be getting annuities on the others, and they are likely to be flat rate I imagine. You are quite young, so you may be better to allow your other money to continue growing for the time being as flat rate annuities have a nasty tendency to get overcome by inflation, causing problems in later years.

dunstonh

It should be noted that GARS are not always fixed. Some increase at age 60,65, 70 and 75. Although the years inbetween may not show any increase and as Ed says, some apply only on a given date and period.

I would hope that your IFA has written to the providers to obtain full policy details before advising you. It can be quite a slow process, especially at the moment. Indeed, I got some this morning that I requested 8 weeks ago.

It can make sense to leave them if there is still growth potential on the funds you are invested in but we dont have enough details here to confirm/deny that.

Where would I go to find a good deal on annuities?

Any IFA can provide you advice on the open market option. Remuneration is typically 1% and many providers will not enhance their terms even if you dont use an IFA. They just keep the 1% for themselves.

If you are working and healthy, then you should reconsider taking the annuities on the non-GAR funds as the annuity rate is based on age (the older you are, the higher it gets) plus you will pay tax on the income. You will also miss out on growth potential in a tax free wrapper.

David_Hoffman

Thanks a lot for those two posts. There's 47k in Norwich Union, Scottish Mutual and Scottish Widows with flat rate GARS from 9.7 - 10.6%. I think I'll just feed the proceeds into a savings account - would an ISA make sense (I'm a basic rate tax payer) for medium - long term growth with this money.

The SIPP option looks better than annuities if I understand your replies. That's really helpful, I'd not considered that at all. Thanks! I have 97k in the non GAR policies that have an SRA of 4/6/06, I don't need cash (I have 60k in 4.5% savings accounts at present) so I'd put the whole fund in. My very limited understanding makes me nervous of charges on a SIPP. It looks like they could easily eat up all the advantages - so how do I find a low charging way of doing this? And what should I be considering when I make decisions about what to invest in?

My IFA is pretty useless - mostly probably my fault for being a half hearted cheapskate with the attention span of a tired gnat - so I'll have to work this out for myself, at least in terms of general principles. I'm really grateful to have found this forum.

David Hoffman

EdInvestor

David_Hoffman wrote:

Thanks a lot for those two posts. There's 47k in Norwich Union, Scottish Mutual and Scottish Widows with flat rate GARS from 9.7 - 10.6%. I think I'll just feed the proceeds into a savings account - would an ISA make sense (I'm a basic rate tax payer) for medium - long term growth with this money.

You can put 3k into a cash ISA and 4k into an investment ISA - there are a number of low to medium risk options you could consider there, such as commercial property funds which are now eligible for ISAs.

My very limited understanding makes me nervous of charges on a SIPP. It looks like they could easily eat up all the advantages - so how do I find a low charging way of doing this?

Try https://www.sippdeal.co.uk for a low cost SIPP ( satisfied customer:))
https://www.hargreaveslansdown.co.uk is another possibility.Neither have annual fees.

And what should I be considering when I make decisions about what to invest in?[/quote.

I'd have thought asset allocation for starters, so as to align your attitude to risk with the type of investments you should make. You might like to play around with this calculator.It's American but it will give you the general idea.

http://www.schaeffersresearch.com/personalfinance/calculators/AssetAllocator.aspx

David_Hoffman

EdInvestor wrote:

if you don't need the income just yet (it's taxable) you could move the pensions in to a SIPP, and thence into income drawdown

I'm probably being dumb here.

If I put the whole fund into a SIPP that will include the 25% tax free component. When I put my (tax paid) money into a pension I get it grossed up to the pre tax value. If I put the tax free component into a SIPP won't I lose the tax gain?

Thanks

David Hoffman

EdInvestor

You are talking about taking benefits from these pensions without the GARs, right? That is, you would take benefits by moving the matured fund to the SIPP, then the 25% tax free cash is paid to you and the rest of the fund is put into "phased income drawdwon" so it remains invested until you want to draw an income from it.(This is instead of converting the remaining fund into an annuity).

David_Hoffman

EdInvestor wrote:

You are talking about taking benefits from these pensions without the GARs, right?

Yes.

EdInvestor wrote:

That is, you would take benefits by moving the matured fund to the SIPP, then the 25% tax free cash is paid to you and the rest of the fund is put into "phased income drawdwon" so it remains invested until you want to draw an income from it.(This is instead of converting the remaining fund into an annuity).

Yes, that's what I understood. I wasn't very clear with my question - If I put all the mature (non GAR) funds into the SIPP and then *don't* take the tax free 25% the fund will be bigger and the I'll have more to draw down from. But the 25% left in is my tax free money but will produce a taxable income.

If instead I took the 25% out but added the same amount from my earned income to the SIPP I'd get tax relief on that contribution so it would be grossed up to a higher value in the SIPP.

Or is my ignorance showing again?

David Hoffman