Spanner in the Pot

confused_of_essex

I am 55 next month.

I have a pension pot invested in bonds and equities with a current value of around £280,000. I also have a final salary pension that I can access when I am 62 that will pay me an income of approximately £13,000 per annum.

I was made redundant last year following 25 years with my employer and have been living on the redundancy money since. My plan was to buy an annuity when I reached 55 and use the 25% cash release to set up a business.

However, the government announcement in respect of the changes proposed for 2015 have thrown a bit of a spanner in the works for me. I now want to wait until these new changes are implemented before releasing the 25% tax free cash sum. I do not want to tie myself into an annuity as I would like the option to control the other 75% of my pension pot myself.

The issue is that the redundancy funds will run out before 2015 and I therefore wondered what my options were in respect of being able to borrow the 25% now with repayment in 2015 once the new changes are approved by Parliament and I am allowed to draw down from my pension pot.

Any advice would be greatly appreciated.

dunstonh

I now want to wait until these new changes are implemented before releasing the 25% tax free cash sum.

Why do you want to wait? Nothing has really changed. You can do what you want to do.

Is crystallising the whole pension in one go the best option for you? For may people it is not. Phased drawdown may be the more tax efficient option.

confused_of_essex

I thought if I wanted to take the 25% tax free cash lump sum on my 55th birthday that I would be forced to use the other 75% to buy an annuity on my 55th birthday and would then be locked into this investment vehicle until the day I pop my clogs.

If I can draw the 25% on my 55th birthday and draw other amounts in cash, as and when I see fit........happy days.

Show me to the room where I can sit down and sign the papers.

:j:beer::T

dunstonh

I thought if I wanted to take the 25% tax free cash lump sum on my 55th birthday that I would be forced to use the other 75% to buy an annuity

No. That hasnt been a requirement for a good many years.

If I can draw the 25% on my 55th birthday and draw other amounts in cash, as and when I see fit........happy days.

That is unlikely to be the best way of doing it. Part crystallisation of the pension with you drawing an income and taking a lump sum to fit your need is likely to be more tax efficient.

Richardvc_2

Please make sure bear in mind the cost of advice in relation to any Drawdown/Part crystalisation option. These plans have a habit of taking a high level of charges. Further make sure you get access to the right funds.

*No Mirror Funds
*No Managed Funds

Importantly some of the providers will not allow you deal direct, which is a worry, that said a partial drawdown will make a lot of sense.

Richard

confused_of_essex

So, can I phone Fidelity tomorrow and tell them that I want to take payment of the tax free cash element of my pension pot (i.e.25 per cent of the total value) on my birthday and ask them to keep the remaining 75 per cent invested in the same securities as they are invested in today?

greenglide

So do you plan on taking flexible drawdown? I believe the rules over the amount of secure income (annuities, pensions in payment) still apply although the amount is less now (£12,000 ?)

Capped drawdown would work though.

Fidelity do do drawdown but their rules mean you need to take "advice" from their recommended company (unless that has changed recently).

You can, of course, move the money to another provider who doesnt impose this restriction.

Triumph13

Just a tiny note of caution. I don't believe there has been any formal announcement that people already in a capped drawdown arrangement before April 2015 will automatically transfer to the new 'draw what you like' rules when they come in. Whilst it would seem crazy for this not to be the case, governments do have a track record of doing crazy things so there is an outside chance that you might lose some flexibility by not waiting.

confused_of_essex

greenglide wrote: »

So do you plan on taking flexible drawdown? I believe the rules over the amount of secure income (annuities, pensions in payment) still apply although the amount is less now (£12,000 ?)

Capped drawdown would work though.

Fidelity do do drawdown but their rules mean you need to take "advice" from their recommended company (unless that has changed recently).

You can, of course, move the money to another provider who doesnt impose this restriction.

Is their recommended company called RDL (Retire Direct Limited)? If so, I think I am already talking to them.

Anybody had dealings with them?

confused_of_essex

Triumph13 wrote: »

Just a tiny note of caution. I don't believe there has been any formal announcement that people already in a capped drawdown arrangement before April 2015 will automatically transfer to the new 'draw what you like' rules when they come in. Whilst it would seem crazy for this not to be the case, governments do have a track record of doing crazy things so there is an outside chance that you might lose some flexibility by not waiting.

I would like to wait until 2015 to allow the full flexibility that waiting would bring but I need to draw at least £40,000 to cover my outlays between now and 2015. Are there institutions out there that would lend that type of money against the value of the pot and if there are what would I repay on £40000 over a year?

kidmugsy

confused_of_essex wrote: »

I would like to wait until 2015 to allow the full flexibility that waiting would bring but I need to draw at least £40,000 to cover my outlays between now and 2015. Are there institutions out there that would lend that type of money against the value of the pot and if there are what would I repay on £40000 over a year?

You could do phased drawdown i.e. "crystallise" £160k of which you'd take £40k tax-free; take some income from the associated £120k if you want; leave the other £120k uncrystallised for the future. If you wanted a good barrier between the £160k and the uncrystallised £120k, you could even transfer one chunk from Fidelity to another provider before crystallising. Then you might expect that at least the uncrystallised £120k would be immune from governmental silliness. But until the new measures are passed as law, you are taking a (small degree?) of a gamble.