Retiring at 50 - is drawdown best option?

No_worries

I am just 50 and under the rules I can retire before the law changes in April 2010. I have a pension pot of £100,000.

Given good health and the expectation of another 30 years of life I can't see that I have any option but to take 25% tax free and leave the rest in drawdown, especially as I don't need to touch it for the foreseeable future.

The thought of locking into an annuity of (say) £400 per month appears safer but will be worth nothing in 30 years so I feel I need to take a bit of risk and leave £75000 in a drawdown fund and trust it performs.

I've been quoted £575 as a one off fee by my IFA with a 3% initial fee and 1/2% thereafter.

Am I missing anything? Does anyone have any advice to the contrary? Thanks!

Thrugelmir

No_worries wrote: »

I am just 50 and under the rules I can retire before the law changes in April 2010. I have a pension pot of £100,000.

Given good health and the expectation of another 30 years of life I can't see that I have any option but to take 25% tax free and leave the rest in drawdown, especially as I don't need to touch it for the foreseeable future.

The thought of locking into an annuity of (say) £400 per month appears safer but will be worth nothing in 30 years so I feel I need to take a bit of risk and leave £75000 in a drawdown fund and trust it performs.

I've been quoted £575 as a one off fee by my IFA with a 3% initial fee and 1/2% thereafter.

Am I missing anything? Does anyone have any advice to the contrary? Thanks!

Why draw it now if you don't need to?

Annuity rates will rise as interest rates will envitably will.

dunstonh

If you dont need it then dont take it.

bristol_pilot

I don't see how anyone can afford to retire at 50 with a pension pot of only £100k. The OP will surely have to carry on working. The issue seems to be driven by the IFA's desire to receive a fee.

EdInvestor

There are several reasons you might want to do drawdown.

1.You have a need for the tax free cash now (eg to pay off a mortgage)

2.You want to get the 25% out now in case someone changes the rules

3.You want to get it into a tax free income environment such as an ISA.

4.You think your pension (or the 75% remaining) will do better in the SIPP wrapper with its much greater investment choice than if it stayed where it is now

5.You are not bothered about a reduction in death benefits.

There is of course no requirement to do anything at all, as mentioned in the posts above.If you do want to to transfer to drawdown it is quite easy to arrange it yourself without paying high fees to an IFA.

These two execution only providers are reecommended for drawdown, have a look at their (lack of) charges.

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

dunstonh

The issue seems to be driven by the IFA's desire to receive a fee.

I doubt the IFA would approach the OP to tell him to do it. Doing drawdown at 50 when the money isnt needed is going to need one hell of a good justification. Otherwise it is just an upheld complaint waiting to happen.

No_worries

Thanks all.

My thoughts regarding drawing it now were that I can still leave 75% invested but have the flexibility to get to it IF I want to. If I do nothing before April then I can't access it till I'm 55. I live off savings and some part-time work but have a wife who is ill so the future is a bit uncertain.

There is also some attraction in taking the 25% and investing it elsewhere, at least I get back some of what I've put in lest all pensions go belly up or the rules change and I can invest it seperately to the main amount - or I suppose I could move the whole 100% to drawdown so that it is accessible but not take the 25%?

I'm not sure I have enough confidence to do my own SIPP - I've known my IFA for 10 years and trust him to do the best, although fully appreciate that I'm paying for this service!

No-one seems to be suggesting I take an annuity so that helps!

dunstonh

There is also some attraction in taking the 25% and investing it elsewhere,

What attraction? Pensions have virtually the same investment options as ISAs and many unwrapped investments.

at least I get back some of what I've put in lest all pensions go belly up or the rules change

unit linked money purchase pensions cant go belly up and the FSCS protection on pensions is greater than it is on investments.

or I suppose I could move the whole 100% to drawdown so that it is accessible but not take the 25%?

Cant see any benefit to that.

The biggest negatives with taking early drawdown is that the death benefits get reduced and you only get one bit at the cherry when its comes to the 25% tax free cash. Even if the fund doubles in future, you wont be able to get another lump sum from it with regards to that pension segment.

No_worries

Thanks dunstonh - so are you saying that if I don't need the money I should just leave it alone until I'm 55 - its with Standard Life ?

dunstonh

I wouldnt give such advice without knowing the facts and situation but a "general" rule of thumb is that if you dont need it, you dont take it unless there is a good reason for doing so.

If you find that good reason then its fine. I'm not sure you have one yet though.

Primrose

If you're in good health, I can't see why you should take an annuity now. As for taking the 25% cash free sum before April,, your need for that money would depend on how much other savings you have got to rely on if times got difficult or you needed them because of your wife's ill health. If you don't need to retire at 50, it would seem sensible not to because with the difficult times ahead I can't imagine anybody living a comfortable retirement for possibly 30 or 40 years on £100,000 pension pot. Obviously if you don't have any ISAs you might be considering putting some of your cash free lump sum into these to provide extra income in retirement, unless you have other savings you can transfer into them but unless you want to clear some debts (mortgage) I'm not sure there is any major benefit in removing cash from your pension scheme.