Too old to start new pension ?

tommytynan123

[FONT=Arial, sans-serif]I'm male and 59 in May. I currently draw 2 pensions which total about £21K (gross) and index linked. I'm fully paid up on NICs. New retirement age regulations mean I'll get state pension at 66.[/FONT]


[FONT=Arial, sans-serif]I start a new p/t job soon and amongst the benefits is a pension. [/FONT]

• [FONT=Arial, sans-serif]contributions only matched up to 6% [/FONT]
• [FONT=Arial, sans-serif]Standard retirement age of 65[/FONT]
• [FONT=Arial, sans-serif]25% allowed on retirement as tax-free lump sum[/FONT]
• [FONT=Arial, sans-serif]6% income is £412 pa (which I can comfortably pay)[/FONT]

[FONT=Arial, sans-serif]At 65[/FONT]

• [FONT=Arial, sans-serif]Based on 6% matched (ignoring pay rises etc) my basic pot is £5000 approx.[/FONT]
• [FONT=Arial, sans-serif]Upper / Lower variables are:[/FONT]
• [FONT=Arial, sans-serif]£5K annuity for monthly income or[/FONT]
• [FONT=Arial, sans-serif]£1250 lump + £3750 annuity for monthly income[/FONT]

[FONT=Arial, sans-serif]Any help on these please[/FONT]
[FONT=Arial, sans-serif]In very approx terms what would a £5K annuity at 65 produce as a monthly income ?[/FONT]
[FONT=Arial, sans-serif]and[/FONT]
[FONT=Arial, sans-serif]is this really worthwhile for me ?[/FONT]

Thanks

jamesd

You're not too old to start a pension and it's definitely worthwhile for you.

From the description the work pension seems to be a defined contribution pension, where you can pick your own investments. Those work in essentially the same way as personal pensions:

1. The standard retirement age has no force at all and you can take it whenever you like. However, something called lifestyling might change investments when you get within ten years of the specified date. You can normally turn this off and/or pick your own investments. Lifestyling shifts people into investments that don't move up or down as much as the longer term stock market investments.
2. From age 55 up you can take a 25% lump sum and income whenever you like.
3. Income choices are to buy an annuity or use income drawdown. Capped income Drawdown limits you to about 7% of the remaining pension pot each year as income. Flexible Income Drawdown has no limit at all but requires that you have at least £20,000 of work defined benefit, annuity or state pensions combined in payment to you at the time you start it. Once you start Flexible drawdown you can't make any more pension contributions, including in the tax year in which you start it.

Since you have two pensions in payment, either work of annuity, you qualify for flexible drawdown. That means you get the tax relief of a pension on the way in but without the restriction on how fast you can take the money out.

Annuities for the sort of purchase price you're considering aren't a very competitive market so at that value it'd be best to just take the money out using flexible drawdown.

Now that you know about flexible drawdown it might be worth considering your other savings and investments since you can use a pension to get the tax relief without the long term pension restrictions.

kidmugsy

tommytynan123 wrote: »

[FONT=Arial, sans-serif]I'm … 59 in May. I currently draw 2 pensions which total about £21K (gross) and index linked. ... I'll get state pension at 66.[/FONT]


I start a new p/t job soon and amongst the benefits is a pension.
contributions only matched up to 6%
[*][FONT=Arial, sans-serif]6% income is £412 pa (which I can comfortably pay)[/FONT]

Based on 6% matched (ignoring pay rises etc) my basic pot is £5000 approx.

In summary, you'll pay £412x6 = £2472, less 20% income tax relief (or "less" even more if you pay by Salary Sacrifice), and in return for this £2k you'll get a pot worth £5k, 25% of which will be tax free. Fill yer boots!!

somethingcorporate

They are offering you a 6% salary increase - grab it with both hands!

atush

Do it, you are not too old to take free money on offer.

tommytynan123

jamesd wrote: »

You're not too old to start a pension and it's definitely worthwhile for you.

From the description the work pension seems to be a defined contribution pension, where you can pick your own investments. (Yes thats discussed in the handbook)

1. The standard retirement age .... However, something called lifestyling (Yes thats discussed in the handbook along with levels of risk)
2. From age 55 ... etc (One quarter of my present pension income is from redundancy from public sector at aged 56)
3. Income choices are to buy an annuity or use income drawdown. Capped income Drawdown limits you to about 7% of the remaining pension pot each year as income. (So in effect 7% of 5K ?)
Flexible Income Drawdown has no limit at all but requires that you have at least £20,000 of work defined benefit, annuity or state pensions combined in payment to you at the time you start it. (which I have now before state pension) Once you start Flexible drawdown you can't make any more pension contributions, including in the tax year in which you start it.

Since you have two pensions in payment, either work of annuity, you qualify for flexible drawdown. (both are occupational - one from Armed Forces and other public sector)That means you get the tax relief of a pension on the way in but without the restriction on how fast you can take the money out.

Annuities for the sort of purchase price you're considering aren't a very competitive market so at that value it'd be best to just take the money out using flexible drawdown. (understand thanks)

Now that you know about flexible drawdown it might be worth considering your other savings and investments since you can use a pension to get the tax relief without the long term pension restrictions.

Thankyou all - time for a rethink. Do you know that even at almost 59 I am so nervous about the new job :rotfl:

xylophone

Do you know that even at almost 59 I am so nervous about the new job

Fear of the new can cut in at any age...how did you feel about starting nursery?:)

I'd certainly contribute to that pension if I were in your place by the way - regard the employer contribution as effectively a salary increase?

atush

"3. Income choices are to buy an annuity or use income drawdown. Capped income Drawdown limits you to about 7% of the remaining pension pot each year as income. (So in effect 7% of 5K ?) "


Nothing stopping you from contributing more than the matched 6% here, if you want a larger bite of a second pension?

tommytynan123

Thanks all - new job is good. I think I'm now 99% happy with the pension bits but just to make that 100% this is how I see it ?

I'm paying 6% by salary sacrifice which is about £40 per month. Matched by employer. (£80 pm total)
Aiming for retirement at 66 (59 this May) so pot should be about £6K
Already have pension income being drawn > £20K
So:
With flexible drawdown I could if I wished, at 66, retire (again) and take the whole pot in one go or just use flexibly. (1st 25% tax free on lumps)

In a nutshell is that correct ?
Thanks

atush

as far as I can see, yes.

Archergirl

Don't know about pensions but congrats on the new job.