How much pension will a fund of £10,000 buy?

usignuolo

My OH, is self employed and doing well enough to not think about retiring until 65. Back in the early 2000s, he worked full time for an employer for 3 years and as a condition of his employment, had to be in their pension scheme, a Personal Pension Plan. He paid the basic minimum contributions, as did the company. Soon after he left the company was sold and his pension fund has since changed hands several times. It is currently owned by Windsor Life.

Recently he got an annual statement from them which I took a look at. This gives the current fund value as £10,400. For reasons which he is unclear about, it appears to consist of two separate policies and the retirement date (in fact incorrect but that is a separate issue) given is September 2012.

If he opts for a pension at that time, according to the letter sent, Windsor Life have worked out his potential pension "using government rules" to be £197 annually for each policy. So £398 pa for around 10.5k fund.

A covering letter says "your pension income will look lower than estimates you may have seen before because inflation is taken into account".

Also the assumptions are that there will be an investment return of 5.3% each year and an inflation rate of 2.5% each year until retirement.

It seems very low even given the current market. There is a transfer value of around the same amount. Should be take this instead and where would he transfer it to? Can he just withdraw the whole amount? We need a new car!

atush

http://www.pensioncalculator.org/annuity-calculator/

dunstonh

My OH, is self employed and doing well enough to not think about retiring until 65.

Is your OH aware that as he is self employed he doenst get the full state pensions. Just the basic which is little over £5000 a year and that the age is going up to 68 in stages? in which case, can he afford to finish at 65?

it appears to consist of two separate policies and the retirement date

Possibly due to one being protected rights and the other non protected rights? Or one was a top up amount?

It seems very low even given the current market.

What current market?

The figure is in todays terms. No future money terms. You need to remember that.

Should be take this instead and where would he transfer it to?

Possibly. Many of these old plans are obsolete now and can be improved upon. However, the main problem is that its a tiddly amount. Yes, it may be improved but if there is no other pension provision, the changes are going to be minimal.

Can he just withdraw the whole amount? We need a new car!

No you cant withdraw it. It is to stop people stealing from their retirement to buy things that are totally inappropriate earlier. Such as a car.

How old is your OH?
What other retirement provision does he have apart from this?

usignuolo

OH is 60 and yes he does plan on continuing working after 65. He has another pension pot, taken out from a previous period of self employment, no sure how much it is (around £21k from memory) but it is a self employed fund as opposed to a Personal Pension. It was with Abbey Life.

There is no indication in the latest statement from Windsor Life why there are two policies or whether or not they are protected or unprotected. The total value of the fund is given as one figure and then the forecast is given against two separate but successive policy numbers and is the same in each case £197.

I see that it does say in the covering letter that if the fund is less than £18k he can take it as a lump sum between the ages of 60 and 75. First 25% taxable.

Surely there are different annuity amounts payable for each £10,000 of fund and some must be more £397 pa - otherwise why are people advised to shop around?

dunstonh

I see that it does say in the covering letter that if the fund is less than £18k he can take it as a lump sum between the ages of 60 and 75. First 25% taxable.

That is not correct and it probably doesnt say that. It would say something along the lines that if all his pensions are less than £18k he can take a lump sum as someone with less than £18k in pensions by age 60 is considered to have trivial amount for retirement. Whilst he has a very small amount put aside for retirement, it above the trivial limit so he cannot excercise that option.

Surely there are different annuity amounts payable for each £10,000 of fund and some must be more £397 pa - otherwise why are people advised to shop around?

They are. Hence why the example figures are just examples using a range of assumptions that may or may not apply.

bilbo51

dunstonh wrote: »

That is not correct and it probably doesnt say that. It would say something along the lines that if THE SUM OF all his pensions are less than £18k he can take a lump sum as someone with less than £18k in pensions by age 60 is considered to have trivial amount for retirement.

Just for clarity.

downsizer3

I was told that a pension fund of £100k gives you an income in retirement of circa £5k. Food for thought - it certainly put my pension into an unfavourable light!!

usignuolo

Just to say that I have an adequate occupational pension on the horizon and we also have a nice house in a nice part of London which if push came to shove we could sell with one of the nice estate agents who keep pushing letters through our door ......so we are not anticipating being destitute

what is the minimum amount worth consolidating several different pension funds? in addition to my main pension, I have several different bits and pieces of pension funds which I am am thinking of consolidating in the near future. I suppose they come in total to around £50,000 in three different schemes.

atush

you really need to examine each carefully first. Any FS or defined benefit plans should probably be left alone. And policies with a GAR or MVA should be assessed to see if again, you should leave them alone (GAR yes, MVA possibly move depending).

Assess how each policy has been doing, what funds it is invested in (you can change these and still leave it where it is) and what the charges are.

If you have some that are underperforming or have high charges it cold be worth moving them.

Thrugelmir

usignuolo wrote: »

I suppose they come in total to around £50,000 in three different schemes.

You may be shocked how little annual income a fund of this size will provide you with.

Many I suspect intend downsizing to release equity.

gadgetmind

Thrugelmir wrote: »

Many I suspect intend downsizing to release equity.

I understand they are now called hippies: House Is Pension.

No way would I have flogging my house as part of my pensions planning, not moving overseas as an unavoidable part of my retirement. I'm not saying I won't do these things, just that I don't want to be forced to.