Is it possible to take part of Scottish Equitable pension early?

bobobrussel

My colleague at work is now 52 and has heard he may be able to take 25% of his private Scottish Equitable pension NOW, as opposed to waiting until he retires. Is this possible? He says the rules recently changed to allow this. Can someone explain?

Thanks.

EdInvestor

It's quite possible.

First he needs to transfer his pension from Scot Equit to a SIPP ( choice of which depends on what he wants to invest his pension in, and also what charges he wants to pay.) Then he "takes benefits".This means he places his pension into "income drawdown" which means it gets invested again and he can take an income from it - though he doesn't have to now - instead he can wait until he needs it later. When he puts the pension into income drawdwon he can also take the 25% lump sum paid out in cash.

However, due to a little wrinkle in the new rules, I would suggest he left a little bit of the cash behind (only about 1%, if that) and put the fund into something called "phased dradown" rather than the full version. It's too complecated to explain, but this would make it easier to take full advantage of the drawdown system later on.

Pensions weren't meant to be simple

AlexIFA_2

Scottish Equitable have a drawdown facility in their personal pension contract so it may not be necessary to transfer the fund anywhere. He should speak to an Independent Financial Adviser to have a look at the current contract and advise accordingly.

EdInvestor, why would a phased retirement plan make it easier to take full advantage of a drawdown plan?

EdInvestor

Hi AlexIFA

EdInvestor, why would a phased retirement plan make it easier to take full advantage of a drawdown plan?

Because the Revenue have managed to introduce a bit of a problem with the normal form of drawdown in their A-day changes to the rules, by banning anyone from getting an actuarial review of their fund value except every five years. This means that if your fund has gone up a lot, such that you should be able to draw a bigger pension ( and pay more tax on it!), you can't.You are stuck with a pension based on whatever the fund was valued at up to 5 years earlier.

However if you put the fund into phased drawdown at the start ( leaving say 50 segments of the fund behind when taking your tax free cash), this problem is solved, because every time you vest a segment, it triggers an actuarial valaution of the whole fund.

!!!!-up theory of events, if you ask me.The old three-year valuation rule was perfectly OK. The new one is not only going to reduce the amount of tax the Revenue gets from the more successful drawdown investors, but also increase the possiblity that mismanaged funds will be depleted much more rapidly than they should be.

The new rule doesn't make sense at all.