when and where to move pensions for drawdown

snowcat53

Hi fellow posters, I am hoping for some guidance on preparing for drawdown .

I have currently 2 private pensions (stakeholders) with L&G (80k) and Friends Life (40k), and am thinking of putting these into drawdown in about 6 years time (at 65) when I will be receiving my final salary pension (which will well exceed 20k pa, so this is allowed). Current charges are L&G 0.5% up to 50k/0.3% above; FL 0.5% of 'inital units' which is around 0.2%).

Now I understand one cannot drawdown on these stakeholders so I will have to move them but where to? What are the options? SIPP or not? (I guess i will be looking to invest for income at that point so need to have reasonable choice of good funds for that).

What will L&G and FL charge for the transfer?

The last question is - is it better to do the transfers now, or better to wait until i need to set up the drawdown? Am i likely to pay higher annual charges?

All comments welcome!

BLB53

Around six years ago, I consolidated a few personal pensions into a sipp with sippdeal - in the past month, I have taken the tax-free lump sum and converted the pension into drawdown, only took a week and all very smooth so can recommend. There is no fee for the transfer.

Whenever you decide to do this, you will be taking on responsibility for the choice of investments and management so worthwhile spending some time on getting up to speed on this before you transfer.

As for investing for income, have a look at a few articles on Monevator and also have a read of a very good ebook 'Slow & Steady Steps' http://www.amazon.co.uk/Slow-Steady-Steps-Wealth-ebook/dp/B007EBLN3G/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1342855655&sr=1-1

Good luck!

dunstonh

What will L&G and FL charge for the transfer?

zero

The last question is - is it better to do the transfers now, or better to wait until i need to set up the drawdown? Am i likely to pay higher annual charges?

Depends on your provider. The biggest provider of drawdown plans is typically cheaper than stakeholder pensions (using internal funds like a stakeholder hold). There are some cheaper than that but many much more expensive.

snowcat53

dunstonh wrote: »

zero

Thanks dunstonh, that's good to know.

dunstonh wrote: »

The biggest provider of drawdown plans is typically cheaper than stakeholder pensions .

Would this be HL? Looks like may not be in the case of the L&G funds (although i would probably switch to others anyway)

dunstonh wrote: »

(using internal funds like a stakeholder hold). .

Sorry you lost me there - can you clarify that ?

Many thanks

snowcat53

BLB53 wrote: »

Around six years ago, I consolidated a few personal pensions into a sipp with sippdeal - in the past month, I have taken the tax-free lump sum and converted the pension into drawdown, only took a week and all very smooth so can recommend. There is no fee for the transfer.

Whenever you decide to do this, you will be taking on responsibility for the choice of investments and management so worthwhile spending some time on getting up to speed on this before you transfer.

As for investing for income, have a look at a few articles on Monevator and also have a read of a very good ebook 'Slow & Steady Steps' http://www.amazon.co.uk/Slow-Steady-Steps-Wealth-ebook/dp/B007EBLN3G/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1342855655&sr=1-1

Good luck!

Thanks for the tips. I'm looking at HL, SIPPdeal & Bestinvest.

I already do choose my investment funds - although probably not terribly well - so this doesnt scare me.

dunstonh

Would this be HL?

No. Neither the biggest or the cheapest.

Sorry you lost me there - can you clarify that ?

Stakeholder pensions use internal funds. Own brand funds as such. Personal pensions and SIPPs offer external funds. Those managed and supplied by other fund managers. Personal pensions are frequently cheaper than stakeholder pensions when comparing like for like (if you picked an expensive fund it wouldnt be but if you picked a cheap fund the personal pension would normally end up cheaper).

jamesd

snowcat53 wrote: »

I ... am thinking of putting these into drawdown in about 6 years time (at 65) when I will be receiving my final salary pension (which will well exceed 20k pa, so this is allowed).

There is no requirement to have an other income of £20,000 to use drawdown. There are two types of drawdown:

1. Capped drawdown. Can take up to 25% tax free lump sum then take an income of up to the GAD limit each year. can continue to make pension contributions.
2. Flexible drawdown. Can take up to 25% tax free lump sum and can take an unlimited amount from the rest of the pension pot at any time. The extra amount take is added to the normal taxable income of the person each year it is taken. Requires £20k of assured income that can come from things like the state pensions, a workplace defined pension scheme or annuity.

snowcat53 wrote: »

is it better to do the transfers now, or better to wait until i need to set up the drawdown? Am i likely to pay higher annual charges?

Depends on the investments that you want and the charges for those investments. If the charges are OK it'd make sense to wait until the end of next year to see how the dust settles from the Retail Distribution Review.

Your ability to use flexible drawdown offers some interesting possibilities if you're currently either a higher rate tax payer or in a salary sacrifice pension scheme, and if your income in retirement will be taxed at basic rate. You could start taking pension income now under capped drawdown and reinvest the income to get a second set of tax relief, then take the money back out later. You could do the same with other increases to contributions as well, running other savings into and then later out of the pension to get the tax relief.

snowcat53

jamesd wrote: »

Your ability to use flexible drawdown offers some interesting possibilities if you're currently either a higher rate tax payer or in a salary sacrifice pension scheme, and if your income in retirement will be taxed at basic rate. You could start taking pension income now under capped drawdown and reinvest the income to get a second set of tax relief, then take the money back out later. You could do the same with other increases to contributions as well, running other savings into and then later out of the pension to get the tax relief.

thanks very much for that. This is not classified as recycling then? I am currently a higher rate payer but will almost certainly be basic in retirement. I have been making substantial contributions to the L&G pension the last few years to just keep me below the higher tax band.

The personal complication is that all jobs in my workplace are being completely restructured and i may be made redundant next march (which on the positive side would mean an unreduced early retirement pension). So i may only have this year to take advantge of your suggestion to get extra higher rate relief on contributions or on drawdown income.


BTW, who would the 'biggest provider' of drawdown pensions referred to by dunstonh be ?

kidmugsy

If it turns out that you do have a 6 year window, you could just wait to see whether L&G or Friends Life change their tune and decide to allow flexible drawdown.

jamesd

snowcat53 wrote: »

This is not classified as recycling then?

Right. There are some regulations that limit how much recycling of the tax free lump sum can be done but that's not prohibited either, just limited. But there are none for the income, nor for any other income you have.

If you want to recycle the lump sum you have plenty of time to do a fair bit of that as well and since you are going to be able to use flexible drawdown it's probably to your advantage to do so. You're in a very good position for this.

snowcat53 wrote: »

I am currently a higher rate payer but will almost certainly be basic in retirement. I have been making substantial contributions to the L&G pension the last few years to just keep me below the higher tax band.

Less to gain if you're already contributing all of your higher rate income, though the gain from basic rate then taking the tax free lump sum is still worth having. If it's a salary sacrifice scheme the extra benefit from the saved basic rate NI gets you quite close to the higher rate gain.

snowcat53 wrote: »

The personal complication is that all jobs in my workplace are being completely restructured and i may be made redundant next march (which on the positive side would mean an unreduced early retirement pension). So i may only have this year to take advantge of your suggestion to get extra higher rate relief on contributions or on drawdown income.

Not so good, though unreduced pension would be.

snowcat53 wrote: »

BTW, who would the 'biggest provider' of drawdown pensions referred to by dunstonh be ?

Don't know, maybe Standard Life or Skandia. HL currently has high fund charges (takes about 0.8% commission from the fund annual charge) so it tends to be a costly option for larger pension pot sizes. That charging model is also one that is going to be rendered obsolete in a year and a half or less by the RDR.

Be sure you understand how the rules for final salary pension contributions each year affect you. It's easy to accidentally go over £50k of pension contributions a year if you say get a raise that's multiplied by 20 to work out the gain. Not sure that 20 is the factor for this, just take care and check that you know what's happening in each pension input period so you don't go over the limit.

snowcat53

Much to mulll over there.

The point about L&G and FL maybe allowing drawdown at som point is a good one. Is that likely though?

My inclination based on the above is to leave the pensions where they are for now and continue to contribute all my higher rate income into one (this is nowhere near 50k, more like 15k)- I will not get any serious pay rise for sure.

If there were to be redundancy I should know well before march and hopefully have time to transfer pensions to a SIPP, set up capped drawdown and add some more to the pension in this tax year, then thereafter . (Or am i being over optimistic on timescales - can it be done in 2-3 months ? )

The final salary pension is not a salary sacrifice scheme btw
I will read up on the rules.