Take 25% - leave the rest??

glynm15

Hi all,

Had some good advice on here previously regarding my fathers pension - now after advice / refresh my memory re my fathers in law.

He is 55 in good health and has two average pension pots - one the old contracting out and another he pays in 360 a year!. They are valued at about £43,000 and £14,000 respectively.

His job is a bit effy at the min, so was looking at releasing / saving cash.

Questions / advice;

1. Can he take 25% of the lot now and leave the rest as it is till a later date and then buy an annuity. It he does this is he tied to the current provider or can he still shop the market when the time comes?

2. Can he also stopping paying in to the pension without any problems I.e it will just grow as it would without the extra £360 being paid in.

Any advice appreciated.

Thanks in advance

G

marathonic

glynm15 wrote: »

Hi all,

Had some good advice on here previously regarding my fathers pension - now after advice / refresh my memory re my fathers in law.

He is 55 in good health and has two average pension pots - one the old contracting out and another he pays in 360 a year!. They are valued at about £43,000 and £14,000 respectively.

His job is a bit effy at the min, so was looking at releasing / saving cash.

Questions / advice;

1. Can he take 25% of the lot now and leave the rest as it is till a later date and then buy an annuity. It he does this is he tied to the current provider or can he still shop the market when the time comes?

2. Can he also stopping paying in to the pension without any problems I.e it will just grow as it would without the extra £360 being paid in.

Any advice appreciated.

Thanks in advance

G

Well, first of all, £57,000 is in no way average for a 55-year old I would think - especially when a quarter of it is through contracting out.

I think the age at which you can take benefits depends on the scheme. A lot of them are 55 but you'd need to check.

The fund will continue to grow whilst invested.

FYI, if he took his entire benefits at 55, he'd get £14,250 lump sum but his annuity would only be in the region of £21.50 per week based on 3% escalation with a 50% spouse's pension.

The reason I highlight this is that, should your own pension provision not be sufficient, you should take this as an opportunity to review them.

Jack_Griffin

marathonic wrote: »

Well, first of all, £57,000 is in no way average for a 55-year old I would think - especially when a quarter of it is through contracting out.

Table 17: Average size of pension fund used to buy an annuity
https://www.pensionspolicyinstitute.org.uk/default.asp?p=84

Table 4: Average proportion of pensioner income paid from state and private pension provision[1]
https://www.pensionspolicyinstitute.org.uk/default.asp?p=71

marathonic

Jack_Griffin wrote: »

Table 17: Average size of pension fund used to buy an annuity
https://www.pensionspolicyinstitute.org.uk/default.asp?p=84

Table 4: Average proportion of pensioner income paid from state and private pension provision[1]
https://www.pensionspolicyinstitute.org.uk/default.asp?p=71

That's crazy... Roll on the planned compulsory financial education in schools....

The 2009 figure is extremely low and corresponds to the low in the stock market. It would appear that a lot of people aren't de-risking whilst approaching retirement.

Proxy

Jack_Griffin wrote: »

Table 17: Average size of pension fund used to buy an annuity
https://www.pensionspolicyinstitute.org.uk/default.asp?p=84

Table 4: Average proportion of pensioner income paid from state and private pension provision[1]
https://www.pensionspolicyinstitute.org.uk/default.asp?p=71

The problem with these averages is they fail to account for people having multiple pots. Quite a lot of people have 2/3/4+ pension pots.

glynm15

Thanks.

Maybe shouldn't of used the word average - above average now being used!

Anyone confirm my original questions / thoughts.

Thanks

dunstonh

1. Can he take 25% of the lot now and leave the rest as it is till a later date and then buy an annuity. It he does this is he tied to the current provider or can he still shop the market when the time comes?

Yes that is possible although you would have to ask why he would want to crystallise the pension at 55? Reduced death benefits due to increased tax and taking a lower tax free sum than is possible later on (assuming fund growth)

His job is a bit effy at the min, so was looking at releasing / saving cash.

Is there a better way of doing it rather than compromising his retirement?

Maybe shouldn't of used the word average - above average now being used!

£57,000 for a 55 year old is very low. Way below average or desirable. As mentioned, many people have multiple pots and "average" fails to take them into account. With the pot including former protected rights as well, that just makes it worse. Just as his £30pm contribution is way below average too. Its too late to do much about it but he or you should not consider it average.

If he has to apply to benefits because of his job, then commencing the pension would actually allow them to reduce benefits even if he doesnt take the income and the lump sum would come into play as well. Whereas at 55, he would not be expected to crystallise his pension if benefits were required.

glynm15

Thanks dunstonh,

Will stick to not describing pension pots as anything in future.

Reason I used average - was when explaining the value to my FIL, he was very disappointed with the potential annuity. Similar to my father he was sold / advised on these products over 20 years ago and was led to believe (which I assume at the time was correct) that he had no need to worry about retirement.

He is probably in no great need to release the cash, but when I explained the values - I think he was quite excited to take a lump sum now and enjoy themselves. They have a modest income, own their property and all children grown up, so looking at it as a treat and wasn't to impressed an annuity will provide around £100 a month give or take.

His initial thoughts were if he can take his lump sum now and leave the rest invested for 10 years - things will enevitably change and annuity rates might have changed - no crystal ball I know but was hoping that.

So are there any potential penalties with doing this? You lost me with crystallisation comment.

Before anything he will obviously consult IFA, but just wanted to give him a general idea.

Thanks again in advance.

Jack_Griffin

In my view the projected investment returns on pension plans used by some private pension providers 20 years ago were outragously optimistic.

The rules are being tightened http://www.bbc.co.uk/news/uk-20176858

atush

Quote:
His job is a bit effy at the min, so was looking at releasing / saving cash.
Is there a better way of doing it rather than compromising his retirement?

I am with D on this. His pots are low to begin with, and this would just use up valuable pension. He would then also have more cash/savings to spend and this would affect any benefits he might be entitled to if made redundant.

Seeking alternate employment would be a better option, as well as boosting pension payments further in the run up to retirement.

When he took out this pension plan (at 360 per annum or only 30 quid a month) he was probably told but forgot that he should have increased his payments every time he got a raise over the years.

dunstonh

Reason I used average - was when explaining the value to my FIL, he was very disappointed with the potential annuity.

I can understand that. However, like any saving/investment product, the amount you get back is only as good as what you put in. He put in £30pm for a maximum of 24 years. he is likely to live for another 25-30 years. So, in real terms, he should expect an amount back not too dissimilar to what he paid in each month.

Similar to my father he was sold / advised on these products over 20 years ago and was led to believe (which I assume at the time was correct) that he had no need to worry about retirement.

£30pm was a good contribution over 20 years ago. Problem is that he seems to have forgotten to top it up with inflation. 20 years ago a tank of petrol was under £10. You could buy a house for £35,000. He was paying £30pm. Now petrol is 5 times more than that and the same house 4-5 times that but he is still paying the same. He should be paying around £150pm to have the same impact as the £30pm back then. Its a common mistake people do but it is wrong to blame the pension.

He is probably in no great need to release the cash, but when I explained the values - I think he was quite excited to take a lump sum now and enjoy themselves.

In effect, he is robbing his retirement lifestyle to pay for a jolly now. He needs to think of the future.

The rules are being tightened http://www.bbc.co.uk/news/uk-20176858

Bad reporting. Every few years the FSA reviews projection rates and makes adjustments depending on market events and short term potential. A process they have done over many years. There is no tightening or false impressions. It also doesnt just apply to pensions but all projections. Also, the industry is pretty much ahead of the regulator as most providers have used realistic growth rates for the type of investment assets for a couple of years now. It should also be noted that the projection rates were gross of charges. Not net. So, a mid rate projection of say 7% is actually looking at a net return of around 5.5% to 6%. Despite the very bad investment decade, the typical balanced managed fund has still grown by more than the mid rate projection for 10 years ago.