Taking income from pension and investing in ISA

browniej

dunstonh wrote: »

I didnt say no. I said in most cases.

Sorry my mistake.

Currently the money is sitting in a pension tax free.

Would an ISA not be tax-free too?

Your pension could have guarantees or may not be able to do income drawdown and require it to be transferred. If there are guarantees, these would be lost and the transfer could incur charges.

I didn't know that - I will check.

browniej

purch wrote: »

Which is why you should be seeking the advice of a suitably qualified IFA who will be able to ascertain your own unique individual situation and requirements, and will be able to advise accordingly.

I will be seeing an IFA - I have a couple of appointments lined up for next week.

P.S. It is quite obvious that this is a 'planted' question, placed here in order to spark a little controversy and possibly an argument.........but I thought I'd post anyway :rolleyes:

I can see why you would think that as the other thread obviously ended up a bit like that.

However I'm not doing that - I am really looking for help before I see an IFA so that I have a clue what it's all about.

browniej

dunstonh wrote: »

However, that is irrelevant in this thread as the OP has said they dont want the income.

No at the moment I don't need the income. I just wondered from reading the other thread if it might be a good idea to get some money out of my pension and into an ISA where it's more accessible as the other poster, whiteflag suggested.

Thanks for the replies - it's certainly given me some food for thought.

EdInvestor

browniej wrote: »

I will be seeing an IFA - I have a couple of appointments lined up for next week.

One thing to be aware of : an IFA will not normally direct you to a low cost online drawdown provider, but rather to an insurance company.

This will mean that
a)The drawdown plan has high ongoing charges and
b)Typically, he will want 3-5% commission to do the transfer.

Now, for someone who like you just wants to extract the 25% TFC and leave the rest invested, this will look like very poor value, and it is.But there is no need for you to go this route.It is easy to set up a cheap drawdown plan yourself - no more complicated than opening a bank account - and then instructing the insurer to transfer the money.

But the above may be one reason why you often find advisors pouring cold water over the drawdown idea where the pension fund in question is not very large.The costs on many IFA managed drawdowns are so high that indeed they do introduce an extra level of risk.Compare the charges with low cost providers such as https://www.h-l.co.uk and https://www.sippdeal.co.uk to see the difference.

dunstonh

Would an ISA not be tax-free too?

It would be but on death the remaining pension fund would be taxable if you have taken the 25% out. Whereas it would be tax free if you didnt.

One thing to be aware of : an IFA will not normally direct you to a low cost online drawdown provider, but rather to an insurance company.

This will mean that
a)The drawdown plan has high ongoing charges and
b)Typically, he will want 3-5% commission to do the transfer.

This is an assumption and also incorrect. It is true that an insurance company may be used but then they are often cheaper.

But the above may be one reason why you often find advisors pouring cold water over the drawdown idea where the pension fund in question is not very large.The costs on many IFA managed drawdowns are so high that indeed they do introduce an extra level of risk.Compare the charges with low cost providers such as www.h-l.co.uk and www.sippdeal.co.uk to see the difference.

Nothing to do with the fact that the FSA consider drawdown on funds under £100k to be mostly inappropriate and have fined firms that have been found to be doing this without significant justification.

Dont try and SPIN it anti adviser Ed. An IFA arranged drawdown can easily be cheaper than HL that you promote. Yet you are happy to say do it with them despite them being potentially more expensive. Charges are important but the cost difference between using an IFA and using the HL SIPP are usually negligible over the term on commission basis and on fee basis an IFA should be able to undercut HL quite easily.

whiteflag_3

purch wrote: »

P.S. It is quite obvious that this is a 'planted' question, placed here in order to spark a little controversy and possibly an argument.........but I thought I'd post anyway :rolleyes:

Purch , I have to disagree with you on that one , IMHO there nothing to suggest that is the case:D

ps dont ask me to justify myself;)

browniej

EdInvestor wrote: »

Now, for someone who like you just wants to extract the 25% TFC and leave the rest invested, this will look like very poor value, and it is.

I hadn't considered drawdown - to be honest I don't know anything about it so that's something I'll need to find out about.

I had also considered taking actual income from the pension and not just the 25% and putting the whole lot into an ISA.

I'm beginning to think it's really not what I should be doing.

browniej

whiteflag wrote: »

Purch , I have to disagree with you on that one , IMHO there nothing to suggest that is the case:D

Good because it is a genuine question I'm asking.

ps dont ask me to justify myself;)

I had hoped you could have explained a bit more why it might be a good thing to do as that's what you seemed to be suggesting on the other thread. However I can understand why you don't want to get involved.

EdInvestor

dunstonh wrote: »

he FSA consider drawdown on funds under £100k to be mostly inappropriate and have fined firms that have been found to be doing this without significant justification.

The FSA's main job is to supervise the banking system.Do you think they really understand very much about the nature of risk?:rolleyes:

EdInvestor

browniej wrote: »

I hadn't considered drawdown - to be honest I don't know anything about it so that's something I'll need to find out about.

Most people don't realise that what looks quite simple - take 25% tax free cash at 50, leave the rest invested until you need it - actually turns out to involve all this palaver about annuities and drawdown , there is absoluetly no need for this of course, it's all designed to generate fees for the pension industry.

I had also considered taking actual income from the pension and not just the 25% and putting the whole lot into an ISA.

Certainly that's an option, though annuity rates at 50 are usually very low and you could end up paying more tax on the pension than you would if you left it till later.You'd also lose the capital completely.

I'm beginning to think it's really not what I should be doing.

Don't be put off by the apparent complexity, this is a chronic problem with pensions.Once you grasp the concept it falls into place.One of the things I've found is that if you get the money out of the mainstream lifeco/advisor territory it suddenly all changes, customer service is helpful, you can run things online youself, you are not deluged with reams of incomprehensible paper,people explain things properly not in jargon and they don't try to trick you all the time..

Indeed it's not like having a pension at all.