pension help required

arnhemrd

Im a 56 year old married man with a pension pot of £210,000, of which £17,000 of this is protected rights. Im looking to retire soon as possible taking the £52,000 lump sum and seeing what i can get on an annuity. I would like to leave 50% pension to my wife (she's 58) if anything happens to me and take a level pension now as my state pension will kick in in Jan 2019, (at the moment). I know the planning isn't as good as it should be, what with the general election coming up so i welcome any advice. Also would i be as well to try and transfer my pot to a safer option (cash) to safeguard any fluctuations at election time?

Batchy

arnhemrd wrote: »

Im a 56 year old married man with a pension pot of £210,000, of which £17,000 of this is protected rights. Im looking to retire soon as possible taking the £52,000 lump sum and seeing what i can get on an annuity. I would like to leave 50% pension to my wife (she's 58) if anything happens to me and take a level pension now as my state pension will kick in in Jan 2019, (at the moment). I know the planning isn't as good as it should be, what with the general election coming up so i welcome any advice. Also would i be as well to try and transfer my pot to a safer option (cash) to safeguard any fluctuations at election time?

Have you considered income drawdown instead of annuity? leavin a 50% for your wife, isnt great as income drawdown would leave the whole pot thats left, ie, the same as you would have been drawing as a couple... effectively, at which point she can take the annuity!

Please take professional advice... where necessary, but look into it

arnhemrd

Would drawdown give me a guaranteed rate or would it be calculated at the actual time of the moneys release. Has anyone any thoughts regards transfering this pension into cash to safeguard the balance in case of a sharp drop in fund prices.

Batchy

My stakeholder, has a cash equivalent fund, and it never dropped a bean during the last recession and grew about 2% nothing to shout home about. Also fixed interest funds/gilts performed similarly with a slightly better return.

With many funds, your limited to one transfer a year, so its all about timing.

If your not scared of only 3% growth for a year or two then its not a problem.

Its also then timing the return back into equities or higher risk to catch a rsiing market at the best time once the storm has blown over.

jamesd

arnhemrd, drawdown has two main advantages. First, it pays your wife a 100% pension, since she would inherit all of the pension pot into a pension pot of her own. Second, at younger ages like yours it'll pay out more than an annuity.

The disadvantage is varying capital value.

It's easy to smooth out the income, since all you have to do to do that is put one to three years of income into cash within the pension pot. That would get regularly topped up by income from the investments so it would be sufficient to cover several years of very poor performance before there would be a need to adjust spending. For lower variation you can use more of the cash or low up and down movement investments and that's a normal approach to use.

So the calculation at the time of release or in advance answer is a bit mixed. You or an IFA can work out a prudent income level and assure that for many years with the cash. If there's a long term decrease in value then you'd need to decrease that, if there's a long term increase you could increase it.

In addition there's something called the GAD test that sets the maximum amount that can be taken in drawdown income, something higher than normally expected from an annuity at younger ages. This check is performed again every few years and is intended to prevent you from taking more income over the long term than the investments can support.

It's not an all or nothing decision. You can take part annuity and part drawdown. For example you could take an annuity with no provision for your wife and use the drawdown part's 100% inheritance level to provide her with the 50% overall that you want her to get. Or any other blend of the two, using one or more annuities.

If you have a lot of money in lower risk corporate bond funds or UK government bond funds then yes, it would be prudent to move that to a cash fund or cash. That's because those are vulnerable to a significant drop in capital value when inflation starts to increase.

For election fluctuations, there will be fluctuations but those could be positive or negative. No real way to know but if you want to reduce uncertainty you certainly can sell other investments and use cash or a cash fund.

You're very young to be buying an annuity and that will be reflected in low annuity payouts compared to drawdown. Drawdown at 6% of capital as income would pay about £9,500 a year and could be reasonably expected to increase with inflation. At a more cautious 5% of capital it'd be £7,900. Drawing down as a percentage of capital doesn't mean living off the capital, just that you can readily get investments that pay out about 6% of the capital invested in interest and/or dividends.