Need a little guidance with private pension pot

iamthedude

DavidLaGuardia wrote: »

OR she could do drawdown with it

With that option though she'd get hit with 55% tax, correct?

atush

'incorrect, she'd get 100% of the remaining pot. You would get 55% if she died.

Ok, he'll have had tax relief, I understand that, but what if he'd put it into bonds on an ISA? I know ISAs weren't around 20 - 30 years ago when he started putting money away, but he could have put it in over the last 10+ years. I know I'm playing shoulda, coulda, woulda game though there, but there's more flexibility with ISAs than with pensions... Wish I'd known more about pensions earlier - I have an enquities ISA.

No, bonds would not in all likelyhodd have made more than the pension over the last 10 years, dont forget how much tax and NI comes to- and did he have employers contribs? This can be 5-10%, even more of salary?

And that flexibility you mention? Means it might have been spent.

McKneff

Ive maybe got a different attitude through past experiences really.

My mum was so looking forward to getting her state pension on her 60th birthday, in those days, most women didnt work so she applied and got 60% on dads contributions. Never had any money to actually call her own till then.
Her 60th Birthday was January, she drew her pension till June and virtually dropped down dead of a heart attack and stroke.

When I got my 60% I took it, sod deferring it, took my 25% enhanced lump sum and my little £144 a month and Im spending it making my life comfy, giving the kids some, bliss.

Tomorrrow could be my last, if you see what I mean.

iamthedude

atush wrote: »

'incorrect, she'd get 100% of the remaining pot. You would get 55% if she died.

Is that if it's joint? We were told by our IFA that if my dad took a single plan out and he died before my mum she could take what's left in the pot minus the 55%. If I knew she could take 100% of what's left tax free I'd be happier.

atush wrote: »

No, bonds would not in all likelyhodd have made more than the pension over the last 10 years, dont forget how much tax and NI comes to- and did he have employers contribs? This can be 5-10%, even more of salary?

He's not had any employer's contributions, he's been self employed and saved everything himself. He's not earnt loads per year, he's roughly put away £1700 a year over 25 years and that really hasn't changed much - he's not put that much more in during the latter years than he did in the beginning. It is more but he's not crammed to save more in the last 5 - 10 years say... So I don't know, I'm still not convinced.

If he was saving today I'm tempted to think he'd be best off maxing ISAs out first, but I'm no IFA.

iamthedude

McKneff wrote: »

Ive maybe got a different attitude through past experiences really.

Tomorrrow could be my last, if you see what I mean.

I do see what you mean and that's the fine line. Obviously I want them to live forever but I'm realistic and that's why I'm miffed about this target of 94.

The IFA suggested the full blown annunity and I think dad would have gone along with it... I don't think it's in his interest, he's not had the easiest of lives and 85 would be (depressing as it is to say) a longshot for him, but I hope he proves me wrong in spades

I'm genuinely sorry to read that about your mum, that sort of stuff really makes me sad, and for what it's worth I sincerely hope tomorrow isn't your last

Right, I'm dragging him to the gym for an hour.

Thanks everyone for your replies so far, I appreciate it.

atush

Is that if it's joint? We were told by our IFA that if my dad took a single plan out and he died before my mum she could take what's left in the pot minus the 55%. If I knew she could take 100% of what's left tax free I'd be happier.

Yes she would get 55% if she took cash, but 100% if she bought an annuity or went DD. It does not have to be joint, a spouse can inherit the WHOLE pot, but other beneficiaires such as you only 55%.

This is one of many tax reasons it is better to marry (or be civil partners) rather than cohabiting long term. There are tax benefits to marriage.

McKneff

If he's still working he wont need the gym, are you trying to kill him off:rotfl::rotfl:

Honestly, he is probably getting all the exercise he needs, maybe a half hour walk 3 times a week.

Him and me are no spring chickens, we have to slow down when we get to early sixties, well, the spirit is willing, its the flesh that's weak, lol

Have you actually asked him if he wants to go to the gym.

jamesd

A spouse or dependent gets 100% if they want it in a pension pot, 45% if they want it outside. When it's in a pension pot they can use income drawdown, buy one or more annuities or do any of the usual options. Those who are neither spouse nor dependent have to pay the 55% charge on what they get.

I'm unsure why he's been advised to leave the money in the pension pot. That's not required. Taking it now via income drawdown has two disadvantages and several potential advantages:

1. There's a 55% tax charge on inheritance of the pension pot by a person who isn't a spouse or legal dependent putting it into a pension pot. This doesn't apply until age 75 if you haven't taken any benefits. Life assurance can cover this if it matters to you.

2. There's a charge for a GAD calculation every three years, £75 at a number of low cost providers.

3. You can take the income and reinvest it into another pension. This lets you accumulate a second tax free lump sump, magnifying the benefit of using a pension.

4. You can take the income and invest it outside a pension, perhaps within a stocks and shares ISA. This has the advantage of building up a pot that isn't subject to the GAD limit on income drawdown income from a pension. It can be useful if you plan to retire before state pension age or for some other reason need an income above the GAD limit level in the early years.

5. If you don't need capital outside the pension you have the option of reycling the lump sum into more pension contributions, subject to the limits that apply to doing this. Check those limits if this interests you. This has the advantage of pension tax relief on money you didn't even pay tax relief on and you'll get some of it back as a lump sum later. Still reduces the money you have outside the pension, though.

An IFA may feel or be constrained not to offer this option due to concerns about potential liability and the possible costs of regular reviews by the IFA.

What is a "one plan and that will attract 4% minimum over the next 5 years"? Such plans aren't normal investment options for pensions and cause me to wonder if the advice he's receiving is good. How is he paying the IFA, commission or flat fee?

You might also want to read this discussion and the things it links to.

Linton

Just looked at the figures from an annuity calculator..

£2.5K for a fixed rate annuity from a pot of £60K with no tax free sum at 70 looks extremely low even with a reasonable spouse benefit. Running the calculator from here would suggest that perhaps it is at least partially index linked. If so, your calculations suggesting a break even age of 94 are way out.

Edit Add: The FSA annuity calculator gives you more detailed examples. Its not a definitive quote but will give a reasonable idea of the approximate size of an annuity.

Linton

Bit more calculation - £2500 does look index linked, at 3% inflation that gives a payback time of some 18 years which is pretty close to the life expectancy.