Should my Dad use a drawdown for his 48K pension pot instead of an annuity?

JackSprout

My Dad is retiring in October at the age 65 and he has a 48K pension pot, Ihave already discovered he can get an extra 1K on the 25% lump sum and £600 peryear more by going with a different annuity provider, however I have beenlooking into my pension plans quite hard the last month and discovered a fewthings.

I would like to suggest to my Dad that he uses a drawdown and after taking a25% lump invest in an income fund like Fidelity MoneyBuilder Income.

Ill put my hands up and say that we would like the money to be inherited bythe family, but not at the expence of my Dad not getting at least the measly guaranteed3.5% annuity rate that he is being offered at the moment. He is in good healthand we are long livers.

What should I advise my Dad, I will be seeking independent advice as well.

dunstonh

My Dad is retiring in October at the age 65 and he has a 48K pension pot, Ihave already discovered he can get an extra 1K on the 25% lump sum and £600 peryear more by going with a different annuity provider, however I have beenlooking into my pension plans quite hard the last month and discovered a fewthings.

Changing annuity provider should have no impact on the tax free cash (unless there is GMP and there is a tax free cash limitation due to the GMP. However, that usually means the income is higher).

I would like to suggest to my Dad that he uses a drawdown and after taking a25% lump invest in an income fund like Fidelity MoneyBuilder Income.

Pretty poor investment choice for a drawdown investment strategy.

but not at the expence of my Dad not getting at least the measly guaranteed3.5% annuity rate that he is being offered at the moment.

What options have you utilised to get such a low annuity rate?

margaretclare

Ill put my hands up and say that we would like the money to be inherited by the family

It's your Dad's pension fund, not yours. He should do what he wants to do with it.

I believe that if he went to an IFA and got independent advice, he might be able to get a better deal through another annuity provider, assuming he has what's called a 'money purchase' or 'open market' option. He'd be far better doing his own research.

JackSprout

dunstonh

I just went through the paper work today, the company that he has his pension with are offering 3%, I just went on to confused.com and found a better deal but not much better, I will be speaking to a IFA this week about my own sittuation so will talk to him about this.

I found Fidelity MoneyBuilder Income on fundexpert I stated that fund as it is low risk, which I think you agree it has to be, that said open to suggestions.

Margaretclare

Your right, but he unfortunatly has no interest/ experiance of these types of things.

xylophone

Has he sorted out his state pension/tax code?

http://www.hmrc.gov.uk/pensioners/pension-statepension.htm

gadgetmind

JackSprout wrote: »

at least the measly guaranteed3.5% annuity rate that he is being offered at the moment.

Do you mean 3.5% or 5.3%?

He should probably take the 25% and invest it in an ISA to generate ongoing income, but the remaining pot is rather small for drawdown, particularly some someone not interested in matters financial.

You father should see an IFA himself as they will be able to trounce that 3.5%.

dunstonh

just went through the paper work today, the company that he has his pension with are offering 3%, I just went on to confused.com and found a better deal but not much better, I will be speaking to a IFA this week about my own sittuation so will talk to him about this.

IFA will beat confused.com

I found Fidelity MoneyBuilder Income on fundexpert I stated that fund as it is low risk, which I think you agree it has to be, that said open to suggestions.

It is not low risk. It is cautious but using just one sector increases the risk and it is still capable of 15% losses in a 12 month period.

JackSprout

Thanks guys, yes he has sorted in state and additional pension (well my Mumdid) £185 plus he gets a bit of a government pension which he has taken sincehe was 60. So this is the last thing to sort. I see my mistake on the FidelityMoneyBuilder Income - yes cautious not guaranteed or low risk, I am stil a bitfuzzy on funds but trying to learn all I can about them. Any advice on how topick a good one or a strategy for when to ditch and change a fund?

I think I have persuaded them to see an IFA and will be looking to see what annuityrates he gets, he only has one kidney and smoked 20 hamlet a day most of hislife until 10 years ago so that should help - mind you he is as strong as an oxand as fit as a fiddle bless him.

One fly in the ointment they sent the paper work in May to accept the crappy 3% but as they have not converted yet I am assuming that they can reversce there desition if not I will get bit literal with them, me thinks, cheeky baskets!

And to ever asked the question yes he has 3% in the bag and I estimated 3.5% from confused.com.

dunstonh

He would probably qualify for enhanced terms. An IFA would complete a medical questionnaire and get quotes from the enhanced providers (most of whom only deal via IFAs and not direct to public). Then the IFA will usually haggle it upwards a bit and that should see a higher rate. Something in the 6-7% range typically. Even standard terms should be high 5%

I am assuming that they can reversce there desition if not I will get bit literal with them, me thinks,

It is cast in stone for life once done.

JackSprout

I cannot believe it is cast in stone, my Farther signed a piece of paperaccepting the offer of 3% in May and the pension is held in a pension pot untilthe day before his birthday in October, we are not in October yet and I amguessing his fund is (working hard for him - not) until his retirement date, I cannotsee anything legally binding on the form he signed (I have a photo copy) or thesupporting correspondence. There certainly is not a stamen saying “you have 14days to change your mind and we advise you take independent financial advice”for example.

margaretclare

JackSprout wrote: »

I cannot believe it is cast in stone, my Farther signed a piece of paper accepting the offer of 3% in May and the pension is held in a pension pot until the day before his birthday in October, we are not in October yet and I am guessing his fund is (working hard for him - not) until his retirement date, I cannot see anything legally binding on the form he signed (I have a photo copy) or the supporting correspondence. There certainly is not a stamen saying “you have 14days to change your mind and we advise you take independent financial advice”for example.

If he signed accepting this 3% then it may be cast in stone. Cannot believe how careless some people are about their financial future - this is his income for possibly another 30 years. If he's not interested in it then you're doing a good job for him. I just cannot understand this point of view.