pension advice please

fairypoppins

:eek:Please advise..
We have three group personal pensions. Two are not being paid into. We would like to draw out the 25% tax free lump sum out of two of them, one is with the Pru and that is £42,000. Lets do that one today! My husband is 57 and will retire at around 65. Can we withdraw the money 25% and then invest the remainder in an ISA. If so HOW and which! OR put it in an annuity. If so how and which! We have received the correct forms from the Pru but we are quite baffled! Also it says the annity would start in Jan 2010. What does that mean ? We certainly don't want our pension payments to start for another 8 years or so!

dunstonh

Can we withdraw the money 25% and then invest the remainder in an ISA.

No.

If so HOW and which! OR put it in an annuity.

Do you need the income? buying an annuity early when you dont need it is often folly as you just end up getting a lower income for the rest of your life and you pay extra tax now when you dont need to.

We have received the correct forms from the Pru but we are quite baffled!

I'm surprised you have got the right forms as Pru dont do income drawdown on most of their plans. I would suspect that they have only sent you their annuity options and possibly the open market option forms (although with multiple pensions, full fund transfer would almost certainly be required).

also it says the annity would start in Jan 2010. What does that mean ?

sounds like they are quoting you monthly in arrears as the annuity option if you take theirs. That would explain the date.

We certainly don't want our pension payments to start for another 8 years or so!

What do you want as it does sound like you are trying to commence the pensions?

jamesd

To take the 25% lump sum benefit you're technically commencing the pension. You can take that 25% and leave the 75% invested but some companies don't offer the option called income drawdown that you need to use to do this. You'd need to do a pension transfer to a company that offers income drawdown, take the 25% and set the income amount to zero.

You can't put the 75% into an ISA, it has to remain inside a pension. But modern pensions allow you lots of investment choices within a pension, some of them more than are allowed in a stocks and shares ISA, so this isn't a limit, just something to consider when selecting which pension to transfer to.

You can put the 25% lump sum into ISAs, subject to the annual contribution limit that ISAs have. It's fairly common to do this so that the ISA can later provide income that isn't subject to income tax and the option of a lump sum being available at any time for unexpected large spending needs, like purchase of long term care.

You shouldn't use the option of buying an annuity before you need the income, so if that's all that Pru offers you'll need to transfer the pension to a provider that offers the option of taking the lump sum without buying an annuity.

It's also usually a bad idea to take the 25% lump sum unless there's some financial need for it. Other reasons for taking it before retirement can include anticipating taxable pension income over about £23,000 a year in retirement. Since the higher personal allowance that you get beyond age 65 starts reducing after that taxable income level, moving some money into a stocks and shares ISA and investing it there can be beneficial. Income from the ISA investments isn't taxable so it doesn't count as taxable income and won't reduce the income tax age allowance.

fairypoppins

Thanks for your replies.

DunstonH and James

• - Yes we need the finance now.
• The forms are what you say and are saying that they will start paying monthly payments in January. (which we don't want)

dunstonh

The forms are what you say and are saying that they will start paying monthly payments in January. (which we don't want)

You cant use Pru for what you want to do. You need to transfer the pensions to another provider that allows income drawdown (25% with income paid). However, there are consequences to doing income drawdown. It is considered a high risk transaction. So, dont enter into this lightly.

bendix

dunstonh wrote: »

No.



?

You see, dunstonh, this is where I take an issue with your replies to posts sometimes.

The OP asked if she/he can take 25% and put the money in an ISA. You reply with a typically cavalier 'no' which, while it is literally accurate is probably not the proper response. You are replying to a question she asked, but not the subtext of the question.

As an IFA (and it's your choice that you name yourself as one on this forum) I've said many times you have a greater responsibility to be more thoughtful with your replies.

You know in your work that people don't always the right questions in the right way - surely it's your duty to answer the essence of the questions they seem to be asking, rather than the specifics.

In this case a more suitable reply would have been that she can take the 25% but that the balance either needs to be reinvested via income drawdown or used to buy an annuity.

You have a lot of responsibility on this forum - people take your views seriously. Simply dismissing questions with a factually correct but unhelpful 'no' is abnegating the responsibility you brought upon yourself by naming yourself as an IFA.

fairypoppins

Thank you Bendix for your very helpful and detailed response. Also that you recognised that I am not au fait with pensions and needed a gracious response which you gave me without patronising me or putting me down.

I note your response to Dunston, I had not realised or noted that he is a financial adviser. I must say that I am in agreement with your response to him. I felt quite taken back by his response and didnt understand what I was doing wrong by considering all that is in my query. I felt it very 'hard hitting' a bit like being bludgeoned and without a real understanding of my issues. Very matter of fact. That was how I felt. Dunston- this isnt a 'get at you', but I am pleased that someone recognised that there was something slightly 'amiss'.

As for my query, what could be the consequences of drawing the 25% now and how long will it take to transfer the pension? Also, who could we transfer it to?

fairypoppins

Also, James..if I may... with us having two other pensions is there any harm in us taking this particular pension now? ie taking 25% now and let them put a m0nthly sum into a high interest savings account ready for our retirement starting in January.

My husband has diabetes by the way which is taken into account when they pay out?... to give you as much info as possible.. The other two pensions- one stands at £72,000 ans we would like to take 25% of this and delay payments. The other has only had about 4/5 years..we want to leave this one alone. They have all been set up by my husbands company. We need the money now to straighten our accounts up. I went to Uni for one thing and we only had one income. Taking the two 25%'s would change our lives considerably. Any thoughts?

NOW is our time of need but in doing what we are considering I think that we are also considering our future. Again I would value your, or/and anyone elses thoughts on this.

jamesd

Don't even consider taking their annuity option for your husband with diabetes. There are enhanced annuities available via IFAs that take into account any condition that reduces life expectancy and pay out at a higher rate because of them. Diabetes definitely qualifies so he's sure to get a significantly higher payment from a provider who offers such policies. The same applies for you if you have anything that can reduce life expectancy, from being overweight to smoking. The standard annuity quotes are only decent for people with no adverse health factors.

Unless you want to throw away a lot of money you don't have a choice but to go to an IFA to get details of enhanced annuities because that's pretty much the only way to get them. That means you might as well ask the IFA about the drawdown option that could let you defer taking an income from the 75% part of the pension.

You could start taking an income from the pensions and put it into a high interest account. It's better to defer taking an income if you don't need it, though, particularly if you'd be taking the income with an annuity. For the annuity one reason is the way annuity payment rates increase with age. For both annuity and drawdown a reason is the reduced time for the investments within the pension to grow. However, if you went with drawdown you can say no income now and change that at any time later, including taking lump sums up to the annual limit, which depends on age and pension pot value and is calculated when you start drawdown and every few years after that. When in drawdown you can still choose to use some or all of that drawdown money to buy an annuity at any time you want to do it.

If taking the 25% would change your lives considerably it could well make sense to do it. Not really possible to say more without knowing the rest of your circumstances and why to see whether there might be other options and that's quite a bit beyond what you're asking about.

EdInvestor

fairypoppins wrote: »

:eek:Please advise..
We have three group personal pensions. Two are not being paid into. We would like to draw out the 25% tax free lump sum out of two of them, one is with the Pru and that is £42,000.

You need to transfer this pension to another provider which offers income drawdown.

http://www.pensionsadvisoryservice.org.uk/personal--stakeholder-pensions/income-drawdown

Often,income drawdown is done inside a SIPP (Self Invested Personal Pension).Here are a couple of suggested providers:

https://www.h-l.co.uk
https://www.sippdeal.co.uk

Once you have instructed the Pru to move your money to your new drawdwon provider, you will then get paid the 25% tax free cash.It will be up to you to reinvest the remaining 75% of the pension.If you don't need an income from the money, then just leave it invested.If you do want an income you can take anything between zero and 120% of the annuity income you would get, and you can change this any time to suit.

So the next step is to find a drawdown company, open an account and then fill in the forms telling the Pru to transfer the money over.Th.is will probably take a couple of weeks

One other point: is the Pru pension in the With profits fund?If so, does it have a Guaranteed Annuity Rate attached? If so and this is high, you could lose out by moving the money now.

Doshmedico

Why not adopt some lateral thinking here.

So you take your lump sum and pension now but don't need them.
Don't worry, just put it all back into another pension plan and have another lump sum plus another pension from the new fund in the future.

The lump sum reinvested will benefit from Income Tax relief. So if the lump sum is say £10,000, your new pension plan will be credited with £12,500 if you pay tax at 20%, and if you are a higher rate tax payer, you can have another £2,500 tax rebate.

Your pension will be paid after tax has been deducted. So if your monthly pension is say £100, you will get £80 after tax at 20%. However, if you then invest the £80 back into another pension plan, £20 of Income Tax relief will be added to it, resulting in a total monthly investment of £100 in your new plan.

Because this is such a good deal, the tax man applies limits, and you need to read up on "Pension Recycling", or better still ask an expert.