Pension Pot

Ceres1

Hi there I am seeking information with regard to accessing money from my pension funds.

I am 62 years of age and have around £25,000 in one pot and £33,000 in the other.

I don't have a clue about pensions but heard recently that I could access 25% of the money tax free.

I've also read that it may be possible to access all of the money in the pots next year (April 2015).

I contacted the two companies a fortnight ago and made enquiries about applying for 25% of the pot. I have received paperwork that outlined how much I had in the pots and the 25% tax free amount. Both included four annuity / retirement pension options.

I don't want to buy an annuity at all.

So my questions are as follows:

Do I have to buy an annuity this year if I want to access my 25% tax free amount right now?

Will I be able to access all of the money in the funds next year and use it as I wish such as paying off my mortgage?

dunstonh

I don't have a clue about pensions but heard recently that I could access 25% of the money tax free.

It has been 25% since 1988 (although some niche schemes could pay less or more depending on certain criteria)

I've also read that it may be possible to access all of the money in the pots next year (April 2015).

Correct....subject to tax.

o I have to buy an annuity this year if I want to access my 25% tax free amount right now?

No. There hasnt been a requirement to buy an annuity for many years. However, that may be the only option your current pension providers will offer in-house. Other options may have to be purchased elsewhere.

Will I be able to access all of the money in the funds next year and use it as I wish such as paying off my mortgage?

Yes. However, do be aware that it may not be the best option. For example, paying tax to get it out of a tax free wrapper to then use it in a taxable way (such as putting some of it into a savings account) would not be a good idea. Clearing a mortgage early is not often a good idea (depends on scenario in question).

atush

Basically you may have to transfer your pensions in order to take the 25% tax free now. Ask your provider if they do Drawdown. If they don't, find a new provider who does then transfer the two pensions.

Do check before you do that neither pension has any valuable guarantees attached.

as for paying off your mtg early, what is the rate? how much is the balance and how much longer has it to run?

You have a 58K pension pot, and if this is your only pension other than state pension, then if you use it to pay off the mtg you may not be able to retire as you might not have enough income.

Are you working now? Does your current employer have a pension scheme?

Ceres1

Thanks to you both for replying so promptly (Dunstonh and Atush).


I’ve already mentioned that I don’t have a clue about pensions at all, as you'll see :embarasse No doubt there are many others in the same boat as myself :undecided


All I know is that one of my pensions is a private pension and the other I paid into relating to a prior job that I had. I haven’t contributed to either in years.


I can’t understand why neither of them, after taking 25%, seem to be giving me no other option than buying an annuity (the private pension) or a retirement pension (the pension linked to work).


‘Basically you may have to transfer your pensions in order to take the 25% tax free now. Ask your provider if they do Drawdown. If they don't, find a new provider who does then transfer the two pensions.’

If the providers do drawdown does this mean that after taking the 25% tax free I will be able to lift the rest of the money next year subject to tax? If they don't do drawdown will I have to pay to transfer my pensions elsewhere?


‘Do check before you do that neither pension has any valuable guarantees attached.’

Hate to sound like a real dummy but what is a valuable guarantee and how do I find out if they are attached or not?


I am working right now on a zero hour contract job (very insecure financially and not in a pension scheme). I have an interest only mortgage of £40,000 which has to be paid off in 6 years time. Before I heard about the changes to accessing pension pots I reckoned I would have to sell the house to pay off the mortgage.


The amounts mentioned with regard to the annuity / retirement pension, after taking 25%, would amount to about £50 a week. I think I would rather take the money and pay off the mortgage to get some kind of peace of mind. Then if things get tight I would go ahead and downsize.

atush

Guarantees could be Guaranteed Annuiity rate- a rate so good you'd take the annuity as it will be far above today's rates. Or Guaranteed minimum pension, these are valuable too. And both are lost of you transfer.

There may be a fee to transfer, you'd need to ask current provider and new provider that you have chosen.

With Drawdown your remaining pension of 43500 could provide an income of 6-9% under the GAD rules so 2600/3900. Which are both more than the annuity you quoted.

It is a real shame you didn't have a plan to repay your interest only mtg. All those with an IO mortgage should. As you can never relay on downsizing as this requires market conditions to be in your favor.

Plus how would you pay for rates and the costs of maintenance if you only have the SP to rely on? It won't be enough fo a comfortable life.

So in your circumstances I would take the 25% TFLS and then sell and downsize to pay off the mtg. AS at least then you will have a place to live rent free, that has lower running costs incl rates, and you would still have an income in excess of state pension. Otherwise you may not be able to retire but would have to stay in work.


If you do stay in work after state pension age, don't claim it but defer it. This will give you a 10.4% boost for each year (unless you reach SPA after april 2016).

Does your current employer offer a pension?

dunstonh

I can’t understand why neither of them, after taking 25%, seem to be giving me no other option than buying an annuity (the private pension) or a retirement pension (the pension linked to work).

Because that is all they offer. It is a bit like going into an Apple store. They only sell Apple products. Not anything else on the market place.

‘Basically you may have to transfer your pensions in order to take the 25% tax free now. Ask your provider if they do Drawdown. If they don't, find a new provider who does then transfer the two pensions.’

If the providers do drawdown does this mean that after taking the 25% tax free I will be able to lift the rest of the money next year subject to tax? If they don't do drawdown will I have to pay to transfer my pensions elsewhere?

The existing providers are unlikely to offer drawdown. I tiny minority may but its likely they wont. There could be charges involved on a transfer depending on existing terms and what alternative you buy.

I am working right now on a zero hour contract job (very insecure financially and not in a pension scheme). I have an interest only mortgage of £40,000 which has to be paid off in 6 years time. Before I heard about the changes to accessing pension pots I reckoned I would have to sell the house to pay off the mortgage.

So, why not wait until next year when the rules change?

Ceres1

‘Guarantees could be Guaranteed Annuity rate- a rate so good you'd take the annuity as it will be far above today's rates. Or Guaranteed minimum pension, these are valuable too. And both are lost of you transfer.’

Thanks for clarifying that Atush


‘’With Drawdown your remaining pension of 43500 could provide an income of 6-9% under the GAD rules so 2600/3900. Which are both more than the annuity you quoted.’

I can see now that I’d have to shop around, beyond these providers, to get the best rate if I decided to do this. However would that be fixed say at £3000 plus or could the rate drop along the way? I’ve been ripped off so often before with say insurance companies that I don’t have a great deal of faith in them at all. ‘Drawdown’? So drawdown doesn’t actually mean ‘drawing’ all of your money out of the account?


Yeah having an interest only mortgage has been another ‘financial boob’! The only thing I have in my favour is that I live in a very nice area where the property moves quickly. I’ve actually had people put letters through my door asking if I’m planning to move (no not the neighbours :laugh:) My wife also has a good work pension which helps.


No matter which way I go with this I reckon we will sell up next year. I’ve also been thinking about buying something small here and a place abroad (need to do my homework re. that :doh::)) then may be able to let it out for part of the year.


'If you do stay in work after state pension age, don't claim it but defer it. This will give you a 10.4% boost for each year (unless you reach SPA after april 2016).'

Thanks … I’ll have a look at that too.


'Does your current employer offer a pension?'

They’ve just started a pension scheme but I’ve opted out of it. Seems a bit pointless to get into that at my age, on a lousy wage and when I don’t even know if I’ve got work from one day to the next

atush

Well if they match your money there is EVERY point in taking it. AS it will double your money plus tax relief. Nothing else you can do with that same amt from your pocket will amt to anything.

And then you can have it all in retirement. So go to HR and join today.

No the money from DD is NOT guaranteed. But, it can fall if you draw too much (ie the 9%) or your investments fall. But 100% of the pot would be inherited by your wife, and not lost as with an annuity.

but as your wife has a pension (what kind, FS or money purchase) that will help. And downsizing now when you are not forced to is a great idea, and buying a smaller place locally. but buying abroad is NOT a good idea for you, you don't have enough money really. I own 2 properties abroad and they cost a lot of money to run. Better to keep that capital and pay for a holiday a few times a year with the income from it.

Ceres1

Hi Dunstonh


The posts ARE helping me to make sense of it all now I just thought that if I lifted 25% of the money now the rest of the money would sit with these providers until I decided to lift it next year. I can see now that that’s not how it works.


Yeah I’m just going to wait until next April when things will hopefully be more straightforward.

Ceres1

Atush all of your points (work pension, drawdown and property abroad) have given me a lot to think about.


I'm also sure that the comments that you and Dunstonh have made in response to my questions must be helping others that are as financially inept as myself (if there is anyone out there that is :undecided )


I've got a better idea now as to my options and have until next April to consider what to actually do with the pension funds.

atush

TBH, having an IO mtg wasn't the worst idea ever- your problem was you didn't have anything in place (such as a S&S isa etc) to pay it off when it came due.