25% lump -what happens to the rest?

gericom10

I have approx £150k with NU in a balanced managed fund, which I don't contribute to, as my company pension is topped up well by my employer.

I am confused about what happens if I take the 25% in 2009 when I will be 50, can I just leave the rest in the fund to carry on growing, or do I have to take it out, and if I do what next?

BTW 40% of the pot is protected rights, not sure if this matters

Would like some clarity if anyone can help

thanks

dunstonh

You can take 25% out under income drawdown but take zero income. This will leave the 75% invested until you are ready to commence an income.

Regardless of what the NU fund grows to in future, you will not be able to take a another 25% out in the future (unless you were to make further contributions, in which case you could take 25% out of those and what they grow to).

Protected rights is no problem as you can still do income drawdown with protected rights with a number of providers now.

The pension is tax free. Tax free growth, no income tax and not part of your estate for IHT purposes. The minute you take that 25%, you bring it into a taxable environment with only the ISA available to avoid it (with regard to investment options). If you dont need the 25% for a specific purpose, then you ought to consider leaving it (although perhaps change the investments within the pension as NU do a lot better funds than the bog standard balanced managed fund).

gericom10

thanks for that, a lot clearer now
but on this

'The minute you take that 25%, you bring it into a taxable environment with only the ISA available to avoid it (with regard to investment options).'

if I leave the rest after the 25%, and I don't draw any, would the interest be taxed?

thanks again

EdInvestor

Are you married?It would only take three years to get all the money protected in ISAs if both 7k annual allowances were used.

Are you a basic rate taxpayer?If so, and you invest the money in shares or equity funds you should pay no tax on dividend income and have an annual capital gains tax on realised profits of 9k (x2 if in two names) so the likelihood of paying any tax is viurtually zero.

Of course the danger in leaving the money in the pension is that tax free cash could be abolished.It's a recurrent rumour.

gericom10

thanks Ed

the idea of taking the 25% was for me to give up work and for us to use that amount to fund our travels for a couple of years.
Then sell the house which would give us about £180k to carry on travelling or buy a place somewhere sunny.


my wife has no pension or savings to draw on but will qualify for the state as she has enough NI contributions, I am a basic rate taxpayer and expect my company pension to have a fund of about £50K when I stop working

my main question is what to do with the 75% left in the NU pension?

appreciate any ideas

EdInvestor

The best idea IMHO would be to move the NU pension to a low cost online SIPP (which you can easily manage while travelling), take the 25% cash as planned and put the remainer into income drawdown,where it can be reinvested.

With drawdown you now have the option of taking no income at all - so your fund continues to grow until you need it - or of taking an annual income at 120% of the annuity rate for your age.This is a useful backstop, just in case.You could probably get an income of around 6k a year at first, if you needed it, and this would hopefully grow long term. This level of income can go quite a long way in sunnier and cheaper parts

Have a look at these two SIPPs:

https://www.h-l.co.uk
https://www.sippdeal.co.uk

They are both cheap (you don't want high charges eating up your income), and easy to manage online. Investing properly for both growth and income will require your attention also: and equities will be part of that.Sippdeal is the best oif you want to get a share protfolio (saves loads on charges) while HL is cheaper if you want to use funds.

At the moment you can't put PR money in SIPPs, but by 2009 that problem should be resolved.

dunstonh

The best idea IMHO would be to move the NU pension to a low cost online SIPP (which you can easily manage while travelling), take the 25% cash as planned and put the remainer into income drawdown,where it can be reinvested.

This is the sort of comment and advice that the FSA is totally against and has concerns about. We know nothing about gericom but you already have him transferring to the most expensive pension option which also cannot take 40% of the overall fund (due to protected rights) and therefore not suitable for the need. Plus NU do have a lot of plans with GARs and GMP guarantees and these would need to be checked first to see if they exist and if so, the cost of losing them.

At the moment you can't put PR money in SIPPs, but by 2009 that problem should be resolved.

They said that "problem" would be resolved in 2006 and then 2007 and it still hasnt been and there has been nothing to say it will change and when.

EdInvestor

dunstonh wrote: »

This is the sort of comment and advice that the FSA is totally against and has concerns about. We know nothing about gericom but you already have him transferring to the most expensive pension option

Rubbish.These are the cheap options.

Plus NU do have a lot of plans with GARs and GMP guarantees and these would need to be checked first to see if they exist and if so, the cost of losing them.

The poster is in a balanced managed fund.

They said that "problem" would be resolved in 2006 and then 2007 and it still hasnt been and there has been nothing to say it will change and when.

It should change at the end of this year after the annuity review. The Government made it clear they wanted SIPPs to be regulated before PR money could go in and that only happened last month.

gericom10

thanks to you both for your thoughts

Dh, I took your idea and contacted NU today, and they are sending me the info I need to look into transfering some of the balanced managed into some of thier other funds that might give me a better return

as I have got a couple of years to run before I can take the 25% it will give me time to get a lot more savvy on what to do with the rest, certainly I like the idea of moving it into a Sipp and having more control, and more options , thanks Ed

all these ideas are great for us newbies, and it's brilliant that the two of you have such knowledge

thanks again

dunstonh

Rubbish.These are the cheap options.

A low risk investor would utilise internal funds more than a higher risk investor. Internal funds are cheaper on personal/stakeholder pension than a SIPP. e.g. Norwich Union Property fund is 1.00% on a personal pension/stakeholder but 1.5% in a SIPP.

The poster is in a balanced managed fund.

And your point is? GMP and GARs are available on unit linked funds as well. They are not the exclusive domain of with profits funds. Many of NUs older plans have a small internal fund range.

jamesd

gericom10, there's a lot of updating of pension options going on these days so don't be surprised if the best options have changed a bit by the time you come to take the money. Worth investigating again then. Getting information on switching funds from NU was definitely a good move.