Pension options

the_doctor_2

I am coming up to 55yrs this October and have my Std Life private pension available to me, the pot fund is £200k. We have sat down and decided it would be a good idea for to release the 25% cash lump sum and it would serve me well to have the remainder as a monthly income.

What are my options for the remainder and how does it work, I understand that I do not have to leave it with Standard life but who can control that sum of investment for me.

many thanks

GhIFA

It depends on what you are looking to do. Will you still be working? Do you have any other pension benefits that will pay out from a later date? There are different options available - annuity will mean you know what income you will receive for the rest of your life. However, annuity rates are very low at present, and taking an annuity from age 55 will not give a decent income, particularly if you want to build in any spouse's pension and index linking. You are not restricted to taking an annuity with Standard Life, but can take the Open Market Option if another provider will offer a better rate.

Alternatively there is Capped Drawdown - this will give you flexibility to control the income you take (subject to a maximum level set by the Government Actuaries Department), however, this option has a number of risks, and there is the potential for reduced income in the future (the maximum level will be reviewed every three years).

You will of course have options for producing income from the tax free cash as well (assuming you have not earmarked for another purpose).

However, this is not a question that can be answered definitively here. Your options will also be determined by your state of health, preferences on death benefits etc.

My view would be that if you don't need to take the benefits yet (i.e. you are still working) then doing so is unlikely to be the best course of action for you. The income you receive will be lower than at a later date as it more likely going to need to be paid for longer.

Linton

You have 3 main options that may or may not require transfer from Std Life.

1) Leave it invested if you dont need the income immediately
2) Buy an annuity. This will give you a steady income guaranteed for the rest of your days. There are lots of options here which you would need to research and/or discuss with an IFA. You dont have to buy a Std Life annuity, you can take the Open Market Option or transfer your pension elsewhere to get the best annuity available on the market as determined by your IFA.
3) Drawdown: here you manage your own pension pot (or pay someone else to) and can flexibly take up to a government determined maximum % per year as taxed income. This is particularly useful if you happen to have more than £20K annual pension income (including state pension) from other sources when the government limits are removed. Drawdown can give you a better income than an annuity but is less secure. If your pot is managed badly your income will drop.

dunstonh

We have sat down and decided it would be a good idea for to release the 25% cash lump sum and it would serve me well to have the remainder as a monthly income.

Taking a pension early has consequences. It could be a good thing but more often than not it is not a good thing. Such as if you are still working and dont actually need the money or if you are in poor health.

the_doctor_2

Many thanks for your advice.

my reasoning is based on current work, I turn over between 6-8k per annum, rarely get to paying tax.
My Spouse's income is the main income (GP) and will be a guaranteed figure which will cover our basic living/expenditure.
The lump sum may be used for university or house for daughter (1 off).

But shall do some homework on the annuity and drawdown senarios. I did speak to an IFA recently and they suggested a managed fund (drawdown?) where my money would be placed with a fund manager who would move the monies around 2000 different equities rather than the six general ones that are currently set up. As pointed out I guess this has more risk that government annuities.

atush

If your wife is a GP, surely you have other savings and investments than this pension?

I am with D, I would think long and hard about taking your 25% LS this early unless you really don't need it. Your income alone will be enough to pay for living expenses at Uni for your daughter, if wife's income covers your other outgoings.

the_doctor_2

I semi dropped my career to look after the child atush, small investments and savings.

I do appreciate your advice but something is not ringing danger in my head, I cannot understand the reason for not taking the pension, I must be missing something obvious but what, could you help please.

xylophone

But surely a GP's income is sufficient for quite considerable investments and savings even if the other partner does not work at all?

mania112

Few things:

Your spouse's income is not guaranteed. What if he/she fell ill (or worse)?

Having 2000 equity funds rather than just 6 will help your fund grow IF MANAGED CORRECTLY, but investment choice isn't your priority at retirement.

Annuities aren't run by the government. The benefit, though, is that you are provided with a guaranteed income for life. Drawdown (the 'managed' option you're talking about) is unsecured income, so not suitable for everyone. Speaking of the government, it is their loans (known as gilts) which paves the way for your income from an Annuity. Those rates aren't attractive at the moment and for age 55, it's unlikely to be the avenue for making the most of your pension.

Releasing cash from your pension for anything other than your retirement will lower your income at retirement (sounds obvious but really quite important).

"The lump sum may be used for university or house for daughter (1 off)." Will 25% of £200k be enough for either of those?

Does your spouse have a pension too?

Point is this. When you look at your assets/liabilities now and in the future, what is your resulting income requirement when you and your spouse finish working?

Let's say you'll have no debts/mortages when you retire. Let's say conversely you have no investments/cash other than your pensions. You may then be in a place to say, right, we need household income of (let's say) £30k pa to have a comfortable retirement.

Do you have pensions in place to cover that?

If not, taking money out now would be foolish. If you do, that's fine!

the_doctor_2

Thank you for response, I realise the more questions answered it will give a better understanding to my questions.We have no mortgage.
My spouse has 60k of savings.
My spouses pension will be available in 6 yrs time and offer 150k lump sum and 45k annual pension.
Child is 13 and so we shall be looking at 4-5 yrs before uni. It will not be a free lunch, we intend that funding will not be disclosed, if property is invested in a rent will be required as an income to us.
These are our thoughts at the moment and are what we are basing our ideas on.
Hope this helps.

atush

Your spouse has enough pension LS, and savings to cover Uni expenses alone. So there is no real reason to take yours early.

The earlier you take a LS, the lower it will be as there is less time for it (the pot) to grow. So it should be larger if you waited until you actually needed it later. Just because you can take a pension, doesn't mean you should.

And I guess, as the child is now a teenager, you could go back to work at least PT and then increase pension provision. You can actually pay 2880 into a pension each year (ie 3.6K with TR) even if you don't work.