Pension drawdown queries

ceegeekay

Hello,
I actually have roughly three questions to do with pensions.
First, I'm 59 and need a lump sum to finally purchase title deeds for an overseas property which is otherwise paid for, so I can either rent it out or sell. I already holiday in it but knew from the start the title deeds might be a long time coming. They are now ready. This seems like a good enough reason to drawdown 25% of my pension. I have 2 pensions totalling around £47k. I need around £10k to cover all fees including travel and solicitors.

I sent enquiries to nearby F.A.s listed as independent but not one of them responded. Finally a friend recommended someone who did a pension drawdown for him. This particular friend has a history of making bad financial decisions which made me wary of his recommendation. But at least this one contacted me. I wanted to talk about my whole financial situation and was willing to pay for that but every phone call has been rushed and I've felt hurried along into drawing down the 25% now and the rest next April. (I haven't decided about that yet). But his manner disappointed and worried me a little.
His fee is normally 5% for this but he says he's making it 3% for me because of the recommendation. Seems an odd reason. Or am I being unduly suspicious?! Actually this was less than I was expecting but can someone tell me if this is a good or bad commission charge? Or even if I should be using a FA at all? Have I seen somewhere that it's possible to do most of this myself? Being unable to get a response from other FAs I have no way of comparing.

Another concern I have is that 6 years ago a pension advisor (who really impressed me but I've lost his number) looked at my pensions and said if I drew down the 25% I would have to start drawing an annuity on the rest straightaway.
So this leads me to the second part. If I drawdown 25% now does this impact on whether I can or can't drawdown the remainder next year? Should I choose to. I understand this may well be dependent on what kind of pensions I have. The FA I've been talking too said no, it won't impact on future drawdown decisions. Even tho' he hasn't seen my pension portfolio. But as I said, he seems in a hurry to get me to enlist his services ASAP.

The third question is am I right in thinking I won't pay tax on the first 25% drawdown but would on the rest? In which case does that create a tax saving (drawing it down in 2 parts) rather than paying tax on the whole sum (if I left it) next year?

My plan for possibly drawing down the rest is to make improvments to my London flat with a view to selling in the next 2 years to be free of the mortgage which also incorporates a remortgage for a cottage I rent out in Yorkshire. This should leave me with enough equity to buy a liveaboard boat - a long held dream. I'm desperate to retire and am hoping having 2 rental incomes plus some continuing freelance artwork would get me close to the life I want and would cover the expenses of this lifestyle. Mooring fees, maintenance etc.

I realise I've managed to sneek in my other financial dilemmas here! And yes, if anyone can see any glaring hole in what I'm trying to do, or can see an alternative way to re-jig my assets and pensions I'm very open to hearing your input!
I long to sit down with someone and go though it all but it seems those people don't really exist. Or will probably charge me a fortune I can't afford to pay.

Thanks in advance for responses to any one of my queries.

dunstonh

I sent enquiries to nearby F.A.s listed as independent but not one of them responded

Possibly as
1 - your fund total is just £47k. That makes you high risk on a transaction that is already classed as high risk.
2 - you are looking to take it out out of a pension for an asset purchase (or to pay a debt to put it another way). That makes you high risk

High risk transactions are being increasingly shunned by adviser firms or the price increased to compensate for the risk. Advisers not transacting business is something that was unheard of years ago but now very common.

but can someone tell me if this is a good or bad commission charge?

There shouldnt be any commission. Commission is only allowed in non-advised transactions. Advised transactions have to be fee based. So, if this is commission, then it looks like it is being done on a non-advised basis. The figure is at the cheaper end in monetary terms.

Have I seen somewhere that it's possible to do most of this myself?

Yes. You can DIY. The Consumer Panel raised concerns about this a couple of weeks ago as it fears too many people will DIY and make a balls up and have no safety net. However, as it stands, DIY is allowed on most high risk transactions like this.

I long to sit down with someone and go though it all but it seems those people don't really exist. Or will probably charge me a fortune I can't afford to pay.

Effectively, you are outside of the "current" mainstream. So, whilst there are plenty of advisers that will do what you need, it will cost you to get one to sit down in front of you and your investment amounts are really too small to be of interest or cost effective for an IFA.

DonM

Hi,

To answer your questions: Firstly, you may be able to do this yourself. I don't know if you can but I would call your pension providers and ask them what the process would be to enter "capped drawdown". It could be the case of just filling in some paperwork.

Secondly, I may be incorrect here, but why couldn't you enter capped drawdown 6 years ago? In that case you wouldn't have to buy an annuity. You can also set the drawdown as 0% so can therefore just take the tax free lump sum.

Thirdly, taking the lump sum tax free now won't affect your ability to withdraw the rest next year as the rules are changing. The remainder would be added to your income next year and you'd pay the relevant tax rate on it.

Linton

1-3) Drawdown pension

I assume your pensions are simple defined contribution ones invested in share or bond funds. If not the following may not apply....

You can DIY a drawdown pension. To make life easier you will need to open a new pension with a provider that supports drawdown and then transfer both pensions. Your present suppliers may support drawdown, it depends on the details of your pension and the facilities offered by the provider.

Then you can take out a drawdown pension with the new supplier. This will give you the 25% tax free lump sum now and the option to drawdown further money later. Drawdown money after the 25% is taxed as income so you may want to split the payments to avoid higher rate tax. To get this flexibility with drawdown you will need to wait for the 75% until after April 5th 2015 when the rules change.

Total cost - depending on supplier, a total of no more than a small number of £100s.

4) Live aboard

I am a narrowboat owner though I dont live aboard permanently. You need to think this through very carefully. Some points:

a) Have you experience of living on a narrowboat? It wont suit everyone.
b) Total boat costs assuming you pay for a permanent mooring outside the London/Thames area - perhaps £5K/year or more. This includes insurance, maintenance, licence etc. Dont plan on saving money by moving onto the canals.
c) If you intend to be a Continuous Cruiser with no permanent mooring you will need to follow the rules which will be much more rigorously enforced over the next few years. This includes moving every 14 days to somewhere a reasonable distance away, though you can pay extra for a winter mooring.
d) What happens in say 20 years time when the infirmities of age may begin to make narrowboat life difficult?
e) How much are you prepared to pay for a boat? Something decent isnt cheap. If you want it to last 20 years you had better not buy something on its last legs now. Boat costs for something that should float with a working engine would perhaps be from £25K to £100K+ if you want a bespoke new one.

HarryD

Definitely contact your pension provider and say you want to put your pension into drawdown (same thing as capped drawdown). It should be simple and only a small charge should apply.

Several years ago I had a pension pot with Legal & General. Putting it into drawdown wasn't something they made easy at the time. So I transferred the pot to Hargreaves Lansdown and put it into drawdown when it was with Hargreaves. There was a small charge but it wasn't much.

The transfer to Hargreaves was easy - Hargreaves sent me a form and I filled it in and they did the rest. Then another form to put the pot into drawdown.

Whether or not a transfer might suit you (hopefully you won't need to) have a look at the Hargreaves Lansdown website and read what they say about pensions. It's relatively easy to get your head round.

But paying someone 5% or 3% to basically fill in a form for you? Spend a couple of days reading up on it and asking follow up questions here.

ceegeekay

Many thanks for the responses here and your time.
I've taken on board all suggestions.

To dunstonh, I'm not entirely sure what is meant by 'high risk' in this context. I'll admit I didn't differentiate between someone giving me advice and that same person acting for me in a further capacity, i.e. enabling a pension drawdown. So I'm assuming you mean an advisor who performs an action which turns out badly in some way could be held liable? Which might explain the reticence of the 'advisor' with whom I have been talking to discuss any options I may have overlooked. Which is what I really wanted.
The people I tried to contact without success didn't know anything about me btw. I simply left a short message or e-mail explaining I had 3 properties, a mortgage and 2 pensions and wanted help with an an overview.
I know my pension fund is puny, I decided long ago to put money into property instead. So I wanted to know if I was missing a trick in how I'd managed things. My (still relatively small) property portfolio comes to around £650k with mortgage debts of around £200k. But we only get one shot at managing our pension pots and puny or not, I want to get this right.
I'm happy to be enlightened about fees and commissions. I'd assumed it was all paid for that way. Since the advisor gave me a percentage figure as a cost I assumed it was a commission. Which again confirms the distinction you made.

To DonM - it's looking like capped drawdown is the ideal way for me to do this. I'd heard of it but didn't know what it was. I consulted the pension advisor a few years ago to check the funds were in the best place. His advice was free. I may not have been old enough to make a drawdown. But he did stress that if I did take the 25% I would have to start drawing my pension on the remainder. No other options were mentioned. Might this be something to do with my particular pensions? I'll find out.

To Linton - so as long as my pensions are of the standard kind (one is an ordinary private pension taken out 30 years ago, the other was a workplace pension 13 years old, from which some of my now ex-colleagues have moved to other funds, which I was told may affect my tax relief), I should be able to move both pensions to one that allows flexible drawdown? Is it best to get advice for that? And I will still be able to get this type of drawdown if I take out the 25% lump sum early? I know this is only happening next April. Also, when you say I pay the supplier, you mean the new pension provider I choose? The person I've been talking to hasn't mentioned capped drawdown but his cost will be around £360 to release the 25%. But am I right in thinking the 'supplier' charge would happen anyway and I can forgo the £360 by transferring the pensions myself and using capped drawdown?
Thanks for the pointers about boats by the way.
I used to have a boyfriend who lived on a canalboat. So I learnt all about the continuous cruiser versus permanent mooring issues. And many other potential problems. I also decided I didn't like canals or narrowboats. I've spent 20 years looking into this and I either do it now or give up completely. Life is short!
I either want a barge with a permanent mooring in London. Very difficult I know, but they're out there. And I'm not willing to pay more than £500 a month for a mooring, which rules out the 'smarter' end of London marinas. This would enable me to put in a last 2 or 3 years working freelance in London because I'm at a point where I'm being paid more than ever before after 5 very bad years. It could be the costly moorings and maintenance cancel out my improved earnings. I may stay in my flat an extra 2 years instead.
Or else where I really want to be is Brighton marina. I have family history there and feel extremely attached to the area. And yes, I've looked at boats under £20k and they look and smell like trouble! I would be looking to pay around £100k. £120k upwards if it's a London barge. From Brighton I could still do freelance work but maybe not as much. As an artist I'd look at switching my car for a motorhome/studio givng me extra storage and for use as a London 'overnighter'.
I've thought about the 'getting old' side of it but as I put in my first post, I'd do improvements on my London flat using some of my pension and hopefully sell it with a profit of £200k+ after I've paid off mortgages. Meaning I would own my Yorkshire cottage where I also have family, and a villa in Cyprus, which has no mortgage to pay off. They can be rentals until old age forces me back onshore! And in Brighton a high end cabin cruiser is what I'd go for. With a flybridge....
Love talking boats by the way so thanks for enabling a bit of discussion about that!

And HarryD - thanks for the step by step help. I think the pension advisor 5 years ago was with Hargreaves Landsdowne and I was left with a very favourable impression. In fact reading your post again I realise you answered the query I put further up about still using the FA charging 3-5%. Ok. That's how I'll do it!
Many thanks!

HarryD

Not saying this is necessarily right for you, but sometimes an example helps illustrate the principle.

With Hargreaves I took the 25% tax free cash. The remainder stayed in the pension pot in drawdown (aka capped drawdown). In fact I chose initially to take 0 income. One can then decide to take an income at any time. Under current rules the income you can take is capped (hence the name) at a certain percentage of the fund.

However, from April next year the rules change and you can take as much as you like out each year as income. But, if you have other income, you need to be careful that this taxable pension income does not push you into the 40% tax bracket.

With a flexible pension (such as Hargreaves') you can invest the pension pot in a wide variety of things. For example you could go for a very-low-charge tracker fund (essentially you own a tiny bit of every company on the UK Stock Exchange so you're not gambling on one company!). One option is then to draw, as income, whatever dividend the tracker fund pays so you have an income that should rise year on year and your pension pot should grow. But of course there are no guarantees, this may not be right for you, and others will have different views.

Anyway, it's an example of one of the options.

ceegeekay

Thanks HarryD - don't worry, I realise the area of pensions has grown profligate with options lately in a way that keeps me in a kind of stasis! I won't be doing any impulse pension spending!
But at some point I have to act. I need £10k ASAP to buy the title deeds for the Cypriot property and organise possible rental management. And look into valuations in case I decide to sell one day. I have about £9k in an ISA but that's staying there. When you work freelance there are so many cash flow crises. One needs backup.

But I am very pleased to know I can do this kind of drawdown. It was what I wanted but didn't know existed. It galled me to think I may have to drawdown the whole last 75% of my pension next year if I decide to upgrade my flat. Which I think I can do for only another few thousand. Very pleased I can take only what I need.
Being usually what is classed as a moderate to high risk taker when it comes to investments the option to reinvest in such a broad way appeals too.

So basically I can do this by contacting my pension providers now and asking the question. Then I decide who to go to? Fingers crossed my pensions aren't rigged in some way.
And does anyone know of a comparisons website for capped drawdown pension providers?! Do they exist?! Or are they likely to be much of a muchness?

HarryD

Don't know of a comparison site for pension providers.

When you've contacted your current provider it will be interesting to know:
who the provider is
what the pension is invested in
if they provide a drawdown option
what they charge for putting your pension into drawdown
what freedom you have re investing the 75%
what freedom you have to vary the income you take
what they would charge you if you want to transfer to eg Hargreaves (and how you do it)
And probably several more things.

When I put mine into drawdown, it took a day to get the forms through the post having requested them online, then within about a week of returning them I had the 25% cash. So if you reckon on a couple of weeks you should be OK. Though this may vary depending on how efficient your provider is.

ceegeekay

Oh cool!
Sounds flippin' easy!! I'm reigning myself in here.....
Fingers crossed then.
I'll let you know if anything is thrown up which might be of interest.

Thanks again.

Linton

ceegeekay wrote: »

.....
To Linton - so as long as my pensions are of the standard kind (one is an ordinary private pension taken out 30 years ago, the other was a workplace pension 13 years old, from which some of my now ex-colleagues have moved to other funds, which I was told may affect my tax relief), I should be able to move both pensions to one that allows flexible drawdown? Is it best to get advice for that? And I will still be able to get this type of drawdown if I take out the 25% lump sum early? I know this is only happening next April. Also, when you say I pay the supplier, you mean the new pension provider I choose? The person I've been talking to hasn't mentioned capped drawdown but his cost will be around £360 to release the 25%. But am I right in thinking the 'supplier' charge would happen anyway and I can forgo the £360 by transferring the pensions myself and using capped drawdown?
...

You get the 25% when you "crystallise" the pension, ie set the pension up for taking benefits. You can only do this as an annuity or drawdown. So what happens is that it is set up as a capped drawdown pension but you can choose to delay taking any money from it beyond the 25%. You can decide later whether to actually drawdown some money, whether to convert it to flexible drawdown (all drawdowns will be flexible after April 2015) or buy an annuity.

By supplier I mean the pension provider you chose to hold your pension pot. I only know about SIPPs. Each one has a different scale of charges. I use BestInvest who are free for setting up capped drawdown but charge £100/year for ongoing income payments. Also there will be an annual fee simply to hold the investments.