Flexible draw-down: how does it work in practise?

Acremead

I am 68. I have a pension pot totalling about £83 000 with Aviva and Standard Life. I was planning to take 25% tax free lump sum and buy an annuity with the rest of it (Have just had quotes iro £4 000 pa on £63 344). However, it's just been pointed out to me that I'm eligible for flexible draw-down as I already have State and other pensions totalling £22 750 gross pa.

I only have a hazy notion of how draw-down works in practise. I'm assuming that one lodges the pot with a financial institution who then feed out to you annually a sum which keeps you within your current tax band until the pot runs dry and your cash is released from where it's trapped.

Aviva have told me they don't deal with draw-down. I've received a proposal from Liverpool Victoria as follows:

Protected Retirement Plan. I give them my pot of £63 344 (ie nett of the 25% lump sum).
They then give me annually in advance either
£15 647 pa over 4 years (totals £62 588) or
£10 888 pa over 6 years (totals £65 328) or
£ 8 599 pa over 8 years (totals £68 792)

My main question is: is the LV proposal a typical example of how flexible draw-down works or are there other ways of doing it that I should be considering?

Thanks in advance for any insights you can give.

Some background info: based on family history and the fact that I'm on blood pressure medication I'm guessing (barring accidents) that I may live to my mid 80s.

Once the money's come out of the pension pot I'd plan to keep it in savings. I don't understand most investment vehicles and am not prepared to put money where 'it could go up as well as down'.

I already have savings iro £160 000.

xylophone

http://www.hl.co.uk/pensions/income-drawdown/what-is-flexible-drawdown
http://www.curtisbanks.co.uk/assets/downloads/guides/guide-flexible-drawdown.pdf
http://www.hmrc.gov.uk/budget-updates/march2011/pensions-draft-guidance.pdf
http://www.pensionsadvisoryservice.org.uk/annuities-and-income-drawdown/flexible-drawdown

might be worth a browse.

Lewey_78

The LV proposal is typical of how Flexible Drawdown works. Once you have £20,000 of Secured Pension Income you can draw the monies from the pnesion fund in any format, be it one lump sum payment or over a number of years. As you have already mentioned, the key to using it will be withdrawing the monies in an efficient manner that minimises taxation.

Acremead

Thanks for the replies. What I've gleaned (hopefully correctly!) from Xylophone's links is that I could draw down money as required from my existing pension pots if the insurers holding the pots allowed this. Certainly Aviva's chosen not to and I'm checking with Standard Life.

If I'm reading things correctly what LV is offering is actually a short-term annuity within the terms of the flexible drawdown rules.

dunstonh

Aviva do offer it. Just not on a legacy contract (likely to be the same with Std Life as well). Internal transfers to either of their platforms would open up options not present on their legacy contracts. Although its unlikely you would want to use either on a DIY basis.

Acremead

Thanks Dunstonh. I don't know what a legacy contract is.

The woman at Aviva had no idea what I was talking about when I asked about drawdown and had to go and ask someone else. Overall the difference between getting quotes and info off Aviva compared to LV has been a bit like walking through treacle versus flying. As a novice operating on the edge of my comfort zone I'd have confidence in LV talking me through the process but very little if any in Aviva.

dunstonh

I don't know what a legacy contract is.

Any contract that is not currently available for new business. i.e. those set up before rule changes occur.

The woman at Aviva had no idea what I was talking about when I asked about drawdown and had to go and ask someone else.

Doesn't surprise me but it is not a failing on their part either. It is not something they are geared up to provide direct to consumer.

Overall the difference between getting quotes and info off Aviva compared to LV has been a bit like walking through treacle versus flying.

Aviva is mostly positioned for dealing with IFAs with the IFA answering the questions and dealing with service side. It has hundreds of contracts on pensions. Aviva Life & Pensions will handle the legacy contracts and current insured pension offerings but Aviva Wrap would handle drawdown. LV is far smaller and effectively has one offering. It is not as advanced as the aviva wrap option plus LV sold it's legacy book so the staff don't have to deal with legacy contracts as aviva would have. So, its probably not a fair comparison as had you had a legacy LV policy you would have similar issues the other way around.

As a novice operating on the edge of my comfort zone I'd have confidence in LV talking me through the process but very little if any in Aviva.

I wouldnt use either but that's just me but in terms of offering, the Aviva one is far more flexible (but that doesnt mean it is the more suitable). I'm not even sure Aviva would do it direct to consumer either (which is in part why they dont provide staff to do it).

xylophone

http://www.thepensionadviser.co.uk/articles/36/flexible-drawdown/

OP, I found this - does it help at all?

Acremead

Thanks for that Xylophone.

xylophone

Let us know how it pans out in the end?

mania112

Perhaps surprisingly, speaking directly with providers is normally a fruitless exercise.

Although flexible drawdown is actually quite straightforward, I think you'd benefit from discussing this (and potentially your other options) with a local IFA.

https://www.unbiased.co.uk is an independent website which will find you a local Adviser.