Mum can't get her full pension pot even though she hasn't taken anything

buckster

I don't know if they increase with inflation. If she kept it with Barclays my dad would get 50% if I remember correctly so that would be £2500 a year which is pathetic compared with the pot in a drawdown scheme. He has had a stroke and isn't as fit as my mum to be honest who has had a heart attack and has another serious illness that shortens life expectancy.

Linton

buckster wrote: »

The original pot (although it is classed as not a pot due to the type of pension it is) was £180k and Barclays said she can have 25% tax free out and then receive £5k a year, so around 4% roughly. She would need to live over 30 years of it growing at a bad rate (has had heart attack and other serious health issue) to get all the money out because the pot still grows when only..

Your mother hasnt got a pot of £180K, she has a guaranteed income of £5K +TFLS. The pension scheme actuaries have chosen to give her £180K to relieve themselves of the responsibility - the £180K is the variable not the £5K. It sounds like you believe they are being remarkably altruistic.

You seem to have forgotten inflation. Assuming 2.5% inflation the £5K accumulates to £135K (75% of £180K) in 20 years, not 30. That would tie in with average life expectancy. And then the pension scheme is taking the risk that inflation doesnt go much higher.

The 7.5% annuity assuming that it is inflation linked would pay out £135K in 12 years. According to my spreadsheeting if you invested with a return of 6% drawing down 7.5% of initial pot inflation linked would clear the pot in 17 years.

However if you are backing her with your money as well so that she can enjoy all the holidays she wants that sounds great and best of luck to her and you. Though I suggest it would be prudent if you think through what would happen should you die first.

xylophone

You need to remember that the £5000 a year or part of it, depending on GMP/COD is index linked through the Barclays Pension Scheme and presumably provides a survivor pension to the spouse.

Your mother is not prevented from transferring out to a SIPP but it appears that in her case (as probably in the vast majority of cases), HL require her to demonstrate that she has taken advice from an IFA qualified in pension transfers.

As as been said above this would be the stance of most receiving schemes even under current rules and it would appear will certainly be the case for amounts over £30000 under new rules.

Clearly, no IFA will work for free - your mother can approach half a dozen or so and get a quote for the fees.

She should certainly say when she makes her initial approaches that her prime reason for wishing to transfer out of her DB scheme is that both she and her husband have serious health problems and in consequence much reduced life expectancy.

dunstonh

As long as she has had advice but not acted on it then she can proceed but, of course, no one can force any pension to take her business.

They wont just accept that she has had advice. They would want that adviser to issue proof of advice and take on liability.

buckster

Linton wrote: »

Your mother hasnt got a pot of £180K,

The 7.5% annuity assuming that it is inflation linked would pay out £135K in 12 years. According to my spreadsheeting if you invested with a return of 6% drawing down 7.5% of initial pot inflation linked would clear the pot in 17 years.

However if you are backing her with your money as well so that she can enjoy all the holidays she wants that sounds great and best of luck to her and you. Though I suggest it would be prudent if you think through what would happen should you die first.

That £135k would not be frozen over 12 years, the pot would be invested and investments grow. It would not be unheard of for an investment of £135k to more than double in 12 years and this is why the annuity companies have ripped people off for years with terrible returns. Please stop trying to convince me to convince to my mother that an annuity is a good investment because most people agree with me that it is not. I am not asking people if they think she should take an annuity or not but this seems to be all that you are interested in replying about.

If I died before my mum, everyone in my family will be financially secure.

buckster

Thanks for all your replies. It seems that she must go down the 2% IFA charge to transfer the money so we got their in the end.

Thanks again all :beer:

jem16

buckster wrote: »

It would not be unheard of for an investment of £135k to more than double in 12 years

You would need a return of 6%pa to double the £135k in 12 years and that would be taking no withdrawals.

As Linton said, if you made 6%pa and withdrew 7.5% (same as the annuity was offering) you would have used the pot up in 17 years. There is also no guarantee that you would make 6%pa in 12 years.

this is why the annuity companies have ripped people off for years with terrible returns.

They've no ripped people off at all. For many people it's the only guaranteed way of having an income that will last until they die.

Please stop trying to convince me to convince to my mother that an annuity is a good investment because most people agree with me that it is not.

Perhaps these people also don't understand it fully?

I am not asking people if they think she should take an annuity or not but this seems to be all that you are interested in replying about.

People on here are trying to make sure your mother fully understands what she is doing and also trying to make sure that both your mother and father are doing what is best for them.

If I died before my mum, everyone in my family will be financially secure.

Good to know.

jem16

buckster wrote: »

Thanks for all your replies. It seems that she must go down the 2% IFA charge to transfer the money so we got their in the end.

Thanks again all :beer:

Not exactly. It means she must go down the route of getting proper financial advice. That may or may not mean a 2% fee provided you find one willing to take you on which might prove difficult if you're not willing to listen.

buckster

Jem16 are you an IFA or do you have shares in an annuity company? Annuity take ups have dropped to historical lows and this proves that consumers are fed up of being ripped off by annuities.

It will be no problem finding an IFA to take 2% the only problem my mum will have is having listen to the guy rant on about annuities for an hour and a half.

jem16

buckster wrote: »

Jem16 are you an IFA or do you have shares in an annuity company?

No.

Annuity take ups have dropped to historical lows and this proves that consumers are fed up of being ripped off by annuities.

For many, annuities are still going to be the best option, especially those people who qualify for enhanced annuities paying out 7.5%.

I don't expect it will take long for the next lot of complaints to start off;

"I have spent all of my pension pot and now I have no income coming in. What can I do? I wasn't told I could run out of money when George Osborne told me I didn't have to buy an annuity. Who can I complain to as I must have been miss-sold?"

It will be no problem finding an IFA to take 2% the only problem my mum will have is having listen to the guy rant on about annuities for an hour and a half.

Good luck with that then.