Pension drawdown queries

jamesd

ceegeekay wrote: »

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.

This was not a true statement about the law of the land six years ago. Starting with April 2006 it was possible to use income drawdown instead, taking no income and just leaving the money invested to use later.

ceegeekay wrote: »

If I drawdown 25% now does this impact on whether I can or can't drawdown the remainder next year?

No. You can take 25% of any portion of any pot now. However, some pension firms may have systems that do not allow income drawdown and to do this it might be necessary to transfer to another provider. Use caution here, the staff at the pension provider may say or imply that you have to buy an annuity just because that is the only option they offer, not because they are considering the whole set of options.

ceegeekay wrote: »

One thing has been on my mind since last night, which is, how do I go about any of this in a DIY way with two pensions? How can I put them together and get an annuity to later use as a flexible drawdown?

It is not possible to do that with the usual annuity products. Getting an annuity normally means spending the capital to buy the income stream that an annuity pays. This spending of some of the money is a one time decision for that amount of money and it is usually impossible to reverse it and use income drawdown instead at a later date.

There are some annuity products that do not fully spend the money on a lifetime annuity but instead leave a substantial part invested and pay an annuity for only a fixed time, though.

The reason I mention this is to make sure that you know that you must not say that you want to "get an annuity" if you will want to use drawdown. Some pension firm might believe you and sell you an annuity based on your statement that you want one.

ceegeekay wrote: »

it sounds a bit trickier with 2 funds. Do I just arrange for both individually or is there some preliminary procedure for which I might need assistance?

You can do things with them individually or you can combine both pots first, transferring one to the other, or both to a third place. You might use the third place if neither accepts transfer in or if the third place offers facilities or pricing that are better than the other two.

ceegeekay wrote: »

And I'm trying to understand when you say I can get the initial 25% now so long as I set it up as an annuity but next year if I decided to use it flexibly it will automatically become that after April. Otherwise it remains an annuity from which I'll get pension payments? Am I understanding this correctly? So isn't it advisable to 'shop around' for annuity providers?

You're appearing to use the word annuity when the words you should be using instead are "pension pot".

Pension pots can be moved between pension providers. 25% of any part of the pension pot value can be taken as a tax fee lump sum, the remaining 75% off that portion used to buy one or more annuities or placed into drawdown. The money in pension pots can be spent to buy one or more annuities or can be placed into income drawdown to draw an income from the investments. That income can be anything from nothing to the GAD limit under current rules and from nothing to the whole pension pot value under the flexi-access drawdown rules that apply from April 2016.

For example, consider a person who has two pension pots worth £100,000 and £50,000. The person could:

1. Take a 25% tax free lump sum from half of the value of the £100,000 pot. This leaves £50,000 uncrystallised, £12,500 paid out tax free and £37,500 to make decisions about. £7,500 could perhaps be used to buy a level annuity with no spousal benefit and a 10 year guarantee, with the remaining £30,000 placed into capped income drawdown with no income to be taken from it.

2. The £50,000 pot could be transferred to the pot in 1, resulting in that being:

A. a crystallised pot of £30,000 in capped income drawdown
B. an uncrystallised pot of £100,000 (the remaining £50,000 plus the £50,000 just transferred in)

3. From 6 April 2015 the remaining £100,000 pot could be placed into flexi-access drawdown. 25% could be taken as a tax free lump sum and an unlimited amount of the remainder taken as income whenever desired, which will be added to taxable income in the tax years in which it is taken.

The IFA that you have been discussing things with most recently seems to be giving you correct guidance and I suggest that you use their services.