Investment-backed annuities

jamesd

One good candidate for the ISA portion is the Invesco Perpetual Monthly Income Plus fund. That pays out 7% as interest (not dividends) which is tax free within an ISA. There are others that pay reasonably comparable amounts so you should be able to get to the income target faster than you might expect.

Just use some of the capital to top up the after tax income to the level you need while the money is being moved into the ISA.

Dividends are taxed relatively favourably outside an ISA so you might consider something like Invesco Perpetual High Income (yield 3.93% as dividend) to provide some income outside the pension. There are others like Newton Higher Income (yield 6.89%) that are worth considering. When you look at the yield for an investment it should say if that is interest or dividend and the ones paying it as interest are highest priority for going into the ISA because that avoids tax on the interest but makes no difference to the dividend ones unless you're paying higher rate tax (and ignoring the reduced record-keeping requirements for CGT inside an ISA). You can also recognise the interest paying ones because their top holding will be gilts or bonds while for the divided ones it'll be companies.

Don't stick to just those fund. You'll need capital growth from part of the pot to keep up with and ahead of inflation long term and also should diversify among managers. You should really be using 12-15 funds total covering a range of things, something you would probably need an IFA to help with given your current experience level. Not that it's hard, it just takes learning that you haven't done, so you'll need a professional to help you get started.

The GAD limit for drawdown from a pension for a 61 year old man is currently about 5% (for a 2.5% gilt rate) so taking the 5% I mentioned isn't going to be restricted by the limit. It does block you taking a bit more initially to allow for tax while you move the other money into ISA investments.