The mechanics of drawdown

mgdavid

I have DB pensions of just over 20k. Incorporating the thoughts from my earlier thread, I'll delay taking SP 2 years and use flexible drawdown to top up to somewhere below the 40% tax band. This will drain the drawdown in about 8 years so perhaps stability is more important than growth. I have two employers' DC pots and a lowcost stakeholder to go into drawdown. Can anyone point me at a 'how it works' link? Do I take the TFLS from each, then combine the remainder or the other way round? What are they combined into? How and when do I receive payments? In layman's terms I would like to understand the mechanics and options before I talk to my IFA....

jamesd

Probably best to combine first and not have an IFA do that, since that'll cut the work that the IFA has to do. Assuming that you can verify that neither has a guaranteed annuity rate or other similar bonus attached. If you can't verify, let an IFA do it, a GAR is often highly valuable, better than drawdown, though not always.

In general I'd go with combine first. Then take lump sum so you only pay one fee to take it. If doing it yourself have a look at the new Fidelity SIPP since if has no flat charges for this sort of thing and also no charge for transferring out.

From a combined pot you can crystalise a pot in as many pieces of as many amounts as you like, limited only by the charges to do it. Free makes that decision easier. Just be sure to specify that you want 25% pension commencement lump sum from part of it instead of less than 25% from all of it. You're not forced to take all 25%, so be explicit about which way you want it done.

Linton

mgdavid wrote: »

I have DB pensions of just over 20k. Incorporating the thoughts from my earlier thread, I'll delay taking SP 2 years and use flexible drawdown to top up to somewhere below the 40% tax band. This will drain the drawdown in about 8 years so perhaps stability is more important than growth. I have two employers' DC pots and a lowcost stakeholder to go into drawdown. Can anyone point me at a 'how it works' link? Do I take the TFLS from each, then combine the remainder or the other way round? What are they combined into? How and when do I receive payments? In layman's terms I would like to understand the mechanics and options before I talk to my IFA....

What I have done for capped is...

1) Set up an empty SIPP, in this case with Youinvest/SIPPdeal
2) Transfer-in assorted pensions
3) Follow the platform's procedures to:
a - take the TFLS
b - determine the maximum drawdown amount
c - specify amount and frequency of payment, in my case one annual payment in advance, though it can be monthly or ad hoc.
4) the platforms sets up everything, arranges PAYE with HMRC, and pays into one's bank account according to specification in the same way as if it were an employers salary. It is your responsibility to ensure that there is sufficient cash in the SIPP.

Flexible drawdown is the same process, just the procedures are different at stage 3(b).

greenglide

jamesd wrote: »

look at the new Fidelity SIPP since if has no flat charges for this sort of thing and also no charge for transferring out.

But at the moment they have a minimum account value of £75,000 to start drawdown with them or £50,000 to transfer an account in that is already drawdown.

And it looks as if you "have" to take advice from Annuity Direct.

This may change with their new charging just been announced. These are rules in their current keyfacts document.

• You must be aged 55 or over
• Your pension account value must be at least £75,000
• You must have received advice from our chosen adviser,
Annuity Direct, that pension drawdown is suitable for you.

If you are transferring another pension, from which you’re already
taking pension drawdown, into the Fidelity SIPP, the total transfer
value must be at least £50,000.

mgdavid

greenglide wrote: »

But at the moment they have a minimum account value of £75,000 to start drawdown with them or £50,000 to transfer an account in that is already drawdown.

And it looks as if you "have" to take advice from Annuity Direct.

This may change with their new charging just been announced. These are rules in their current keyfacts document.

thanks, I can meet all that but I won't want to use their IFA as I already have one.

jamesd

Just spoke with them, confirmed that advice from Annuitydirect (also called Retirementdirect) is required and asked that feedback that it's a perverse requirement and that it's enough to change me from usually recommending it to almost never recommending it be passed on.

zagfles

jamesd wrote: »

Just spoke with them, confirmed that advice from Annuitydirect (also called Retirementdirect) is required and asked that feedback that it's a perverse requirement and that it's enough to change me from usually recommending it to almost never recommending it be passed on.

Thanks for the info. What a ridiculous requirement - I presume you have to pay Annuitydirect, which Fidelity have agreed to buy! https://www.fidelity.co.uk/investor/pensions/retirement-planning/approaching-retirement/annuity-direct.page

I was considering Fidelity, as they have no drawdown charges unlike nearly every other platform. They go about having a simple % charging structure with no extra fees but then insist you get advice, on a SIPP! Do they know what the first letter stands for?

What aspect of drawdown do they think it's too complicated for mere mortals to understand? The tax rules, the inheritance rules, the limits and reviews, or the investment strategy/risks? If the latter, then how exactly is it any different to someone investing in an ISA or unwrapped investments to use as retirement income, do they insist on advice for that as well? In fact it's obviously safer to use (capped) drawdown than an ISA as there are limits on how much you can take out.

kidmugsy

I transferred lots of bits and pieces to HL, and then put part of the pot into capped drawdown, taking the full 25% of that bit tax-free. Later I swapped into flexible drawdown. My investment policy was to keep my more conservative investments in the SIPP and my racier in ISAs. It was all painless; I phoned to ensure I understood everything and then just instructed it.

gadgetmind

zagfles wrote: »

Thanks for the info. What a ridiculous requirement - I presume you have to pay Annuitydirect, which Fidelity have agreed to buy!

Labour don't seem to want anyone to be able to avoid paying fees at the point of retirement.

http://www.ifaonline.co.uk/ifaonline/news/2303327/labour-pushes-to-make-annuity-broking-legal-requirement

OK, so this is maybe a situation where people should use an IFA but forcing people to do it against their choice is just plain wrong.

grey_gym_sock

gadgetmind wrote: »

OK, so this is maybe a situation where people should use an IFA but forcing people to do it against their choice is just plain wrong.

i don't see a problem with that. it's not as though ppl are making a positive decision that they prefer a lower annuity rate for some reason. it's either laziness, or fear of anything to do with finance, making them take the default option. why not make the default option more sensible?

gadgetmind

grey_gym_sock wrote: »

why not make the default option more sensible?

Why not treat people like grown adults?

Note that my GPP pension provider (Friends Life) also bans you from using drawdown unless you pay someone for advice.

While I may *choose* to take advice at the point I retire or take benefits no way do I want to dictated to like this.