Annuity v Income drawdown

12trees

Retiring at 65 (male) is there a trigger amount in a pension pot to dictate either drawdown or annuity?

bigadaj

Not really, smaller amounts might suggest that you might not be able to ride the ups and downs of investments but similarly returns on annuities will also be poor at low values.

With smaller sums then drawdown might be a good option for many, if their provider allows for it, so long as you can manage it yourself. Minimum fee levels for IFAs would make small sums uneconomic.

If you give an idea of current and projected income, whether a spouse pension is needed, attitude to risk, health, other pension provision etc then the options might be able to be explained in a bit more detail.

Linton

I assume you are talking about capped drawdown. Flexible drawdown can provide a good way of emptying small pots in a short time period.

Drawdown tends to involve relatively high fixed fees - say £100-£150/year to process payments plus the costs of the underlying SIPP. So very small drawdowns can become inefficient. Do you want to pay £100/year to access £500/year from a £10K pot?

Another reason to not put small pots into drawdown is simply the hassle factor. Is it worth managing a SIPP, balancing investments to ensure that you have the cash available to pay the drawdown, for £1K per year? You may as well get an annuity and have much the same income, at least in the short to medium term, without any effort on your part.

With a small pot the benefits of leaving money for your dependents (and at a tax cost) to adult kids become much less relevant.

dunstonh

12trees wrote: »

Retiring at 65 (male) is there a trigger amount in a pension pot to dictate either drawdown or annuity?

The regulator still considered 100k minimum as its guide benchmark. However, it really comes down to capacity for loss, personal circumstances and risk profile.

kidmugsy

Because we also had Final Salary pensions, we went for drawdown at values less then half of £100k. One thing to remember is that annuities pay out according to your age on opening one; drawdowns pay out in line with how well your investments do. There's a case for youngish pensioners (even 65) to opt for the latter, and swap to the former when they are older.