Do I have to buy an anuity or income drawdown?

atush

you've overlooked investment growth (which is a near certainty over 30 years plus. Not to mention the fund size will be 10 years larger, so your numbers on income if taken later that are based on fund size age 55 are well out.

I feel, always, unless you have a life limiting illness, that taking a pension early if you don't actually need it is wrong.

Hardy7

atush wrote: »

you've overlooked investment growth (which is a near certainty over 30 years plus. Not to mention the fund size will be 0 yearws larger, so your numbers on income if taken later that are based on fund size age 55 are well out.

I feel, always, unless you have a life limiting illness, that taking a pension early if you don't actually need it is wrong.

OK, I understand that the fund should probably grow over the 10 years. If I cannot make any further contributions to the fund, so we assume the only increase in the fund is investment growth. If 7% growth p.a. be a reasonable assumption - then I think each £1,000 would have gown to £1,967. So I think the revised comparison would be:

Age 55: £44 income per year per £1,000 pension fund
Age 65: £56 income per year per £1,000 pension fund but fund is bigger x 1.967, so £56 on £1,000 = £110 on the bigger fund

So the difference appears to be not £12, but £66. In which case the £440 taken over the first 10 years is recouped within 7 years. However the £440 if invested at the same 7% return for 10 years would be worth £865 after 10 years. This amount is matched in 13 years.

Is this a fair assessment of the choice?

jamesd

Hardy7 wrote: »

2.5% 55:£44 57:£46 58:£47 60:£49 65:£56

You do need to multiply those by 1.2 to get the current limits. The limit was temporarily dropped from 120% to 100% of the GAD calculation, applying when I did that post, then raised back to 120%.

Provide you're paying basic rate tax it'll be better to start taking it as soon as possible and reinvest it in another tax wrapper.

There are some catches to that:
1. Lower death benefits. It's 100% even outside a pension pot to anyone if you die before you're taken out any money from a specific individual pension pot. After you take anything it drops to 45% outside a pension pot to anyone or 100% to a spouse.
2. Now counts against means tested benefits if long term unemployed and may then also be counted in bankruptcy.

But on the pure investment side, taking it and reinvesting it is better. Particularly if you reinvest it into another pension pot to get another chunk of tax relief, if you want higher pension income more than you want higher capital (accumulated income) outside the pension.

The investment growth is the same if the investments are the same and the money is in comparable tax wrappers, so that makes no difference to the result. If you add ten years of growing inside the pension pot you need to add the same to the money outside it, including each year's income as it's taken and grows until you get to the new age.

grey_gym_sock

zygurat789 wrote: »

So having scrimped and saved £200,000 for a DD pot to generate £10,000 of income you need another (up to) £30,000 to insure the DD pot.

anybody (sensible) entering DD with a £200,000 pot will just have taken a £66,666 tax-free lump sum. that leaves £33,666 spare.