Pension options advice on unsecured pension

kaycee111

Hello money savers!

I am helping somebody to make some decisions with their pension options. They have a pension pot of £35000 and on considering annuities, feels that she could do better by investing the money in a bank - having access to it when needed for holidays etc, and living off the interest. Luckily she has some family to supplement income if things get difficult for her.

I am aware that 25% is available through a lump sum tax free. To access the remaining 75%, we are considering investment into an unsecured pension.
My understanding is that up to 120% of the annuity allowance is available for withdrawal annually - which would mean the remainder of the pension pot could be released within 5 years if the full withdrawal is made annually.

Is this possible and allowed - I haven't been able to find anything to advise as yet.

Thank you!

jamesd

If she wants 120% she has to get it done before 5 April. In the new tax year it's dropping to 100% for new arrangements.

The 120% or 100% is based on the GAD calculation and the combination is called the GAD limit. It's likely to be around 4.5 to 5.5% of the capital value, assuming she's under 65 or so. The percentage rises with age and varies according to the 15 year gilt yield and the GAD tables, which are also being adjusted in the new tax year.

It's impossible to take out the 75% in five years when only 4.5-5.5% can be taken out each year. The limit for new arrangements after 5 April will be reviewed ever three years until age 75 then every year.

The sort of funds that might be used and their yields include:

9.6% Marlborough High Yield Fixed Interest
7.9% Newton Global High Yield Bond
7.2% Newton Higher Income
6.6% Invesco Perpetual Monthly Income Plus (pays monthly)
6.2% Invesco Perpetual Distribution (pays monthly)
3.9% Invesco Perpetual Income

Those yields are historic and not guaranteed. The capital value varies, by as much as 40% in some of them.

If I was to give an example I'd start out with Invesco Perpetual Income as core for inflation protection, add the two other Invesco Perpetual funds to increase income and add some of the top three to give a good chance of hitting the income target.