Take annuity now or later?

ragtagbobtail

My stakeholder pot with L & G is about 50K. I am 60 so could take my annuity now. I would like to work for a few more years and my employer puts approx £700 each month into the stakeholder plan plus my own contribution potentially increasing the pot by another 50K. My question is should i grab an annuity now (approx 3K) and drop out of the plan but carry on working. (redundancy is not likely) or continue with employment and contributing into the plan? any advise most appreciated.

McKneff

Wow, you have an incredibly generous employer putting £700 a month into your pension or is that a typo.

EdInvestor

ragtagbobtail wrote: »

My stakeholder pot with L & G is about 50K. I am 60 so could take my annuity now. I would like to work for a few more years and my employer puts approx £700 each month into the stakeholder plan plus my own contribution potentially increasing the pot by another 50K. My question is should i grab an annuity now (approx 3K) and drop out of the plan but carry on working. (redundancy is not likely) or continue with employment and contributing into the plan? any advise most appreciated.

Just keep going.The age 60 date isn't meaningful with a stakeholder- you could have taken your annuity at age 50 if you'd wanted to.

dunstonh

I am 60 so could take my annuity now.

yes.

My question is should i grab an annuity now (approx 3K) and drop out of the plan but carry on working. (redundancy is not likely) or continue with employment and contributing into the plan?

You will have to check if the employer is willing to continue paying into a new pension that will be required (assuming its not one of the versions of the L&G pensions which allow mixed crystallised and uncrystallised funds). They may not depending on the type of scheme.

Harry_Powell

If you take an annuity now and continue to work, there will be a tax implication (i.e. your income tax will increase in line with the increase in your income from the annuity). You also need to look at how your investments in the stakeholder are doing. Most people's will have been battered by the recent stock market turmoil and so crystallising the pension right now (and therefore crystallising your losses) might not be in your best interest financially. It might be that if you leave the stakeholder for a further 5 years, the stockmarket and thus the investments in your stakeholder could recover, providing you with a larger annuity.

If you did want to take the pension now, and your employer is ok to pay into a new pension, then you could take out the 25% tax free sum and drip feed it into ISAs, reducing your tax exposure.

markandjayne

tricky one really

you need to have a look at how much annuities are paying now, in the past and then give your guess for the future

my impression is that the annuity return is low right now and that you will get a smaller income than you would have done a few years ago so maybe wait and see what happens ?

if you look at the telegraph best buy tables or get an annuity quote from L&G or Aviva - it definitely pays to shop around


good luck

bogeysmum

If you did crystallise this pension, would your employer stop their contributions altogether, or would they be prepared to fund an alternative arrangement for you? An employer contribution of this size is an extremely valuable benefit to give up, especially if you do not particularly need the annuity income at this time. As always, I would recommend you consult an IFA

ragtagbobtail

thank you so much for all the useful advice. i will check if the company would contribute to a different plan and see an ifa. yes the contribution to the stakeholder is generous, to compensate i believe for the closure of our final salary scheme!

Bogle

markandjayne wrote: »

tricky one really

you need to have a look at how much annuities are paying now, in the past and then give your guess for the future

my impression is that the annuity return is low right now and that you will get a smaller income than you would have done a few years ago so maybe wait and see what happens ?

if you look at the telegraph best buy tables or get an annuity quote from L&G or Aviva - it definitely pays to shop around


good luck

I dont think that is the issue, if you need the extra income now then take the annuity, or explore other retirement products via a financial adviser, yes annuity rates are lower then they have been in recent years but this is blown completly out of proportion by the media, the actual difference over the past 5 years between the high and the low is about 1%.

So for example if you hold out for two years to get an extra 1% then ok you might increase your annual annuity, but you have lost out on two years income!!! that you may never get back!! and then what happens if rates go down! or your fund value falls further?

For example lets for arguments sake annuity rates now are 6.5% and you have a fund of £100k after tax free cash = annuity of £6500, you decide to wait for 2 years, in two years lets say the rates are 7% and your fund is now worth 105k = annuity of £7350. You live for 10 years from the day the rate was 6.5%, so by waiting you get 8 years of 7350 = 58800, where as you could have had 10 years of 6500 = 65000, so by waiting for a rate increase you where worse off during your lifetime!

Going back to OP. You have the following options, but the 1st question if you take the annuity is can you rejoin the scheme as a new member for additional contributions or will they pay into a new individual scheme for you. If not it really is as simple as do you need the extra income from the annuity now, if not then I would continue in the scheme. But do explore other options such as phased retirement plans or plans that will allow you take out your tax free cash and leave the rest of the fund to grow. Contracts do exist that allow you to take your tax free cash and continue paying in, you will ofcourse be able to get access to your tax free cash from your new contributions later. Most of these products are usually only available via a financial adviser. Your works pension was probably set up via an adviser, maybe worth asking who that is and asking for an appointment

ragtagbobtail

[FONT=&quot]Thank you Bogle for the really useful info. Will check with my employer about re-joining the scheme, or taking the tax free cash option leaving the fund to grow.

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dunstonh

if you look at the telegraph best buy tables or get an annuity quote from L&G or Aviva - it definitely pays to shop around

That sounds very unreliable. L&G hardly come out best at the moment and Aviva did have a stint a few months ago when they did but nothing recently. Although I did get one with them recently where I managed to haggle the amount upwards.

Never rely on best buy tables in a newspaper. They rarely include all the providers and the assumptions for that example are almost certainly not going to match the requirements you have.

The problem with annuity quotes is that many still require them to be manually obtained. They will publish example rates on a given day but those figures become obsolete in no time. Yet they may not update that figure for months. There is one provider who didnt update their published rate on the tables for 18 months. Yet their real rates changed almost weekly.

If you look at the tables and then get real quotes you rarely find the income you get matches the income in the tabls and the order the providers comes in is usually different.

Tables are good for indication only. They are useless for making a once in a lifestime decision that you cannot change after you have done it.

Will check with my employer about re-joining the scheme, or taking the tax free cash option leaving the fund to grow.

The latter option will depend on the pension scheme. So, even if the employer allows it, the pension provider may not. A stakeholder pension will not. They may have a scheme that does allow it (L&G do) but that would require the employer to agree to pay into your personal scheme rather than the group stakeholder scheme. They may not be willing to do that.