Withdraw the money v have an annuity

wombat42_2

Under the coalition's new pension proposals, if you can show that you have a minimum of other financial resources you can withdraw from your pension like a savings account instead getting an annuity.

What would you do ?

hugheskevi

If you can show that you have a minimum of other financial resources

To be precise, you can access the pension as a lump sum if you can show that you are in receipt of other pensions in payment which increase by at least CPI capped at 2.5% (with different rules likely to apply to pensions crystallised prior to the legislation coming into force). [based on HM Treasury consultation]

you can withdraw from your pension like a savings account instead getting an annuity.

No, not like a saving's account.

Withdrawals from a saving account are not taxed, but withdrawals from the pension would be taxed in the financial year of receipt. That means taking a large lump sum will quickly see you burn through the income taxed at 30% (£23K-£28K, approx) and on into higher rate tax.

What would you do ?

Use existing drawdown arrangements to access personal pension income between age 55 to 60.

Once decent occupational pensions kick in*, if they are above the minimum income level to qualify, I would take a series of lump sums from my personal pension of an amount sufficient to take me up to higher rate tax.

I suspect it would take me about 5 or so years to drain off the pension using this strategy from a few quick calculations.

* (at age 60 for me - taking them early may be an option, but I am assuming this option will be unattractive as I believe the actuarial calculations are likely to be set heavily in favour of the scheme in the future),

wombat42_2

thanks hugheskevi. Perhaps you could answer another question. What are the mechanics of proving you are still alive and eligible to receive the annuity. Do you get an annual form to fill in or what ? What happens if you die in a far flung country and the company providing the annuity never get told ?

hugheskevi

What are the mechanics of proving you are still alive and eligible to receive the annuity. Do you get an annual form to fill in or what ? What happens if you die in a far flung country and the company providing the annuity never get told ?

Not something I particularly know about.

I think that if you die in the UK things like death registers mean that the death should be picked up automatically fairly quickly by people such as Government and annuity providers.

I believe that some annuity providers get in contact with people at about the age of 95 just to check they are still alive, and presumably at some points after that.

If you died in a far flung country, it would be fraudulent for someone to knowingly keep taking the pension of the dead person - but I suppose it could carry on for several years before anyone noticed, assuming the bank receiving the annuity payment were also not informed of the death and someone had a way of withdrawing the money.