in a pickle over pearl

Si.79

Hi, im writing this on behalf of my dad, he has a works pension which he contributes to weekly but he also has 2 separate smaller pensions with the pearl. one is a freedom bond worth £20000 and the other is a retirement annuity worth £3000, both have not grown in value since 1988 and my dad would like to know if he can cash them in as he is over 55. any help would the greatly received. Thanks

CannySaver_2

Hi

He can't "cash them in" in the same way other investments can be surrendered / accessed.

However, he can "vest" the pensions, which means he can take a tax free lump sum generally 25% of the fund and the rest is used to provide an income.

There are a number of ways of providing an income e.g. Annuity, Investment Linked Annuity, Income Drawdown, Fixed Term Annuity, the list could go on. However, given the fund value it is likely that an Annuity will be the most likely option.

Your father or you could use a pension annuity calculator, an example being in the link, to get an idea of the level of income he might expect. Having said that he should consult an IFA to actually arrange the annuity, a few tips when it comes to buying the annuity:

1. Always shop around, don't just take the first one offered
2. Always check whether he qualifies for an Enhanced Annuity due to health or lifestyle issues e.g. smoking
3. Just because he is 55 doesn't mean he has to take the benefits, he could consider moving it to alternative funds with the Pearl or indeed a different pension provider in the hope that he might get better growth.

I hope that helps

The Canny Saver

Si.79

thanks for your help, so am i right in thinking that effectively my dad can claim 25% of it and get the rest paid to him as an income? sorry if i seem thick just that my dad will want to know what to do in the simplest manner possible. is he able to do this now or does he have to wait until he turns 60 ?

atush

Will taking the income push him into being taxed or a higher tax rate? sometimes just because you can, doesn't mean you should?

dunstonh

one is a freedom bond worth £20000 and the other is a retirement annuity worth £3000

The freedom bond is a section 32 buy out policy. Typically, you tend to find the real value in these is the Guaranteed Minimum Pension (GMP). These can be worth far more than the actual fund value.

Nearly all of Pearl's section 226 Retirement annuity contracts had guaranteed annuity rates. For men, that is 9.6% at age 65. More than 50% higher than the open market rate.

both have not grown in value since 1988

That only tends to happen on those with the guarantees. However, are you sure as whilst Pearl have effectively frozen the annual bonus rates, they have retained some terminal bonus. All the ones I have seen over the years have seen the transfer values go up each year.

my dad would like to know if he can cash them in as he is over 55.

no he cant and it would be daft to with these.

so am i right in thinking that effectively my dad can claim 25% of it and get the rest paid to him as an income?

On the RAC he can but it will be better waiting until 60 or even better 65 due to the guaranteed annuity rate. The Section 32 buy out bond may have a greater tax free cash or less depending on the terms.