ISAs v Pensions: The Official Retirement Debate

dunstonh

Think I will go the drawdown route though rules are confusing. Government say you need at least 20k income to qualify and say that a 200k pot will do, sums don't add up there.

As Jem says, that is flexible drawdown. Not capped drawdown.

Can't find anyone paying 6%, for combined index linked more like 3.5 to 4%

You wont find any investment funds in an ISA offering 3.5% index linked let alone 6% index linked.

Anything to stop you cashing in a pot taking the 25% and opening another with the 25% that would attract 20% tax, trying to find fault with it but can't' I'm sure some of you clever ones will direct me?

HMRC.

jamesd

yesitwasme wrote: »

Can't find anyone paying 6%, for combined index linked more like 3.5 to 4%

Around 90% of annuities purchased are level, index-linked are unpopular. Investments within capped drawdown can be used to provide an income and that can grow with inflation, though with risk of a reduction in income eventually if income is sustained at a level above both investment returns and the growth of the GAD limit on how much can be taken out each year.

yesitwasme wrote: »

Anything to stop you cashing in a pot taking the 25% and opening another with the 25% that would attract 20% tax, trying to find fault with it but can't'

There's no fault with it but there are limits on how much can be done, how quickly. If the maximum lump sum involved is no more than 1% of the lifetime allowance you can do it all in one step whenever you like without triggering penalties. Otherwise you can regulate the increase in contributions, increase in advance by more than two years or wait two complete tax years after the one in which the lump sum was taken before recycling. the recycling rules also apply only when the recycling was pre-planned but while HMRC is supposed to prove preplanning, in practice you'd better be able to prove the lack to HMRC.

yesitwasme

dunstonh wrote: »

As Jem says, that is flexible drawdown. Not capped drawdown.
Thanks, I didn't know there are the two options, will research...


You wont find any investment funds in an ISA offering 3.5% index linked let alone 6% index linked.



HMRC.

Was referring to annuities not ISA's thanks

yesitwasme

It's difficult on forums to keep track of who said what!
Not that it matters but it wasn't me who said the 6% , I thought you would be lucky to get 5%
I find it difficult to imagine anyone accepting a straight fixed annuity 'solo' that is where if you die your spouse gets nothing and not index linked.

I'm a few years off yet but do worry about the 20 years before getting my own money back, just hope annuities I'll have risen.
I guess anything could happen in the next five years.

Thanks for the info about recycling pensions, I didn't know and still don't fully! I struggle deciphering gobbledy gook

atush

I find it difficult to imagine anyone accepting a straight fixed annuity 'solo' that is where if you die your spouse gets nothing and not index linked.

You might find it difficult to believe, yet more than 50% of married annuitants do Just that.

EternallyGrateful

A little bit less than 12 months ago I was approaching my 60th birthday, my "readily available" money was running out so I had to make some financial decisions. In the hope that a state pension would still be available when I reached the age of 65 I decided that I should make a five year plan which I would review when (and if) I reached the age of 65.
I had a £200k pension pot, £40k in cash ISA's, £30k in stocks and shares ISA's and £30k cash. My wife also had a small pension fund so we shopped around and converted that to a £200 per month annuity.
I looked at all the options for my pension fund and, as flexible as the rules are compared to what they were, I still struggled to find the right 'solution' to suit my particular circumstances. Eventually I just had to say "it is what it is" and get on with it.
I took the 25% tax free cash and put that, along with the Stocks and Shares ISA money, into income funds under an ISA wrapper in both my wife's and my name. I then took a £500 a month drawdown from my pension fund - I think my limit would have been nearer £600. The growth in my fund has just about covered the income I have taken so it's still worth £152k. We also get about £250 per month income from the funds.
I had to be pragmatic about the whole situation and say to myself that under existing rules this is just about the best we could have done. In addition my pot is 'protected, to some degree, by not converting it to an annuity which also means I am still able to take advantage of any change in pension rules that may be favourable to my situation.
I think you have to be realistic and accept that if you invest to provide a comfortable existence in your old age it is likely that you will die before you spend all your money!

jem16

yesitwasme wrote: »

Was referring to annuities not ISA's thanks

I think the point was that at least you have that option in a pension whereas with an ISA you don't.

yesitwasme wrote: »

I find it difficult to imagine anyone accepting a straight fixed annuity 'solo' that is where if you die your spouse gets nothing and not index linked.

It depends on circumstances. If the spouse has suitable pension provision anyway it may not bee needed.

jamesd

yesitwasme wrote: »

I find it difficult to imagine anyone accepting a straight fixed annuity 'solo' that is where if you die your spouse gets nothing and not index linked.

They pay more at the start, as do level rather than inflation-linked pensions. That may do things like eliminating a reason to use equity release in the early years, while the spouse or perhaps could can do it when both are older and the amount that can be withdrawn will be higher. Or the spouse might have sufficient income to live on with the lower costs of one person. Say if the person buying is a traditional woman and the man has the typically higher pension income so won't need income from her annuity after her death.

It initially seems negative, until your remember things like more than half of those who reach pension age are women and what that implies for their spouse's needs after their death - and how relatively unlikely it is that it'll be the spouse who dies second in this case.

yesitwasme

Mmmm, thank you both, had not thought of it like that..
A day without learning is a day wasted !

Paul_Hyland

this is an easy one.....Pensions! superior tax treatment on growth (due to the 25% tax-free cash), and crucially, pensions are outside of your estate for inheritance tax, whereas ISA's are not.