taking pension lump sum,continuing to work

viv57

I am being made redundant this year and would like to take the 25% lump sum on 3 AVC and money purchase pensions ( I'm 50 ). I'm considering transferring these into a SIPP and taking income drawdown to smooth my future (uncertain) earnings until my final salary schemes start paying when I'm 60 and 65. Lump sum would pay off my mortgage.

Would be grateful for any guidance on 3 issues

1.Total value of the 3 pensions is 100000.Is this too small to make income drawdown worthwhile? Is income drawdown flexible enough to let me drawdown the 75000 in an uneven fashion over the next ten years ?

2.Is it inevitable that i loose some of the value of these pensions on transfer to a SIPP? (One is a Prudential with-profits, another a Standard Life equity fund and the third a money purchase pension from my current employer.)

3.Would i be able to begin a second SIPP for any pension contributions I might be able to make over the next ten years ?

dunstonh

Total value of the 3 pensions is 100000.Is this too small to make income drawdown worthwhile?

No. its fine.

Is income drawdown flexible enough to let me drawdown the 75000 in an uneven fashion over the next ten years ?

Yes (within tolerances)

2.Is it inevitable that i loose some of the value of these pensions on transfer to a SIPP? (One is a Prudential with-profits, another a Standard Life equity fund and the third a money purchase pension from my current employer.)

Neither Pru or Std Life have any transfer penalties.

3.Would i be able to begin a second SIPP for any pension contributions I might be able to make over the next ten years ?

yes.

EdInvestor

2.Is it inevitable that i loose some of the value of these pensions on transfer to a SIPP?

If you do the transfers yourself into a low cost online SIPP there should be only small set-up charges to pay. It's a simple procedure - you just open the SIPP account and then instruct the insurers to transfer the money into it.The SIPP provider will then pay out the tax free cash, and then you have to reinvest the remainder.

SIPPs normally charge by the task rather than via an annual percentage based fee, so you can save money by taking your income in one annual payment rather than monthly.

For an idea of costs have a look at these two providers:

https://www.sippdeal.co.uk
https://www.h-l.co.uk

Is income drawdown flexible enough to let me drawdown the 75000 in an uneven fashion over the next ten years ?

Yes, you can take income between nil and 120% of the annuity rate for your age (subject to movements in gilt rates). The fund must be revalued every 5 years to set the maximum income you are allowed, and can be revalued annually on request (eg if your fund keeps rising in value and you want to take a higher income).

viv57

Edinvestor thanks for your comments , i have one further question. When you say you can take income between 0-120% of the annuity rate does that mean that if i take no income out for 4 years i can then take out 600% of the annuity rate in year 5 ?

EdInvestor

viv57 wrote:

Edinvestor thanks for your comments , i have one further question. When you say you can take income between 0-120% of the annuity rate does that mean that if i take no income out for 4 years i can then take out 600% of the annuity rate in year 5 ?

No, the income has to be taken on an annual basis It can't be accumulated.It can vary between zero (no income) and 120% of the annuity rate. There is nothing to stop you from taking the income out of the pension and saving it up in your ISA of course if you don't need it.

If you are taking no income then it's likely your fund will grow, possibly by quite a lot in 4 years. Thus the amount of income you could take from year 5 might be considerably higher than the amount you would be allowed in year 1, particularly as you will be 5 years older, so the annuity rate will have risen as well.

viv57

I have just heard from the companies who adminster the two pensions from previous employers mentioned in my first post and they both tell me that the trustees of the pension scheme have not yet voted so as to allow AVC pension entitlements ( as mentioned, held with Prudential and Standard Life) to be separated from my main final salary pension.

I do not want to transfer the final salary portion of these pensions to a SIPP, just the AVC portion. Do i have any leverage with the Trustees to allow me to just transfer the that portion ? Thanks in anticipation for any suggestions!

EdInvestor

Unfortunately not - AVCs are very inflexible - normally they are linked to occupational pensions so that you have to take benefits from them at the same time.

One solution might be to take one of the final salary schemes plus associated AVC early. Obviously the pension value will be reduced and if the penalty os too high it may be a non starter ( but this could be offset by tax advantages.)

Suggest you get quotes from all the pensions on taking them early with the associated AVCs/lump sums.Quite a few schemes are offering incentives to people who want to go early these days.

viv57

thanks EdInvestor, i will follow your suggestion and get levels for taking the pensions at 50, posting details of the haircut when they arrive in case others in a similar position are interested.Must say everthing i had read in the past advised againgst trying to take final salary pensions early so interesting to read your comments

dunstonh

Must say everthing i had read in the past advised againgst trying to take final salary pensions early so interesting to read your comments

Thats because it is usually wrong to take the money early. The penalties are usually too heavy.

You could ask the trustees to break the tie in for the AVCs. I have done this in the past and been successful a few times. You still get some refusals though but these tend to be where there are funding issues where the AVC and Final Salary scheme interlink to alter the amount that would be payable. Also, smaller firms tend to be more co-operative than larger concerns.

viv57

thanks will try that too

EdInvestor

Thats because it is usually wrong to take the money early. The penalties are usually too heavy.

Against that you have to add up the additional years of receiving the pension and compare it with how long it will take you to get the same amount at a higher rate later - and also factor in possible tax advantages (or disadvantages).

Particularly with female retirees, the position can be different from the conventional wisdom as things like spouse's pensions are often not important.