Pension Draw Down

haulyfryn

I have two small pensions one of which is £35k I would like to take 25% of this amount each year from April. I spoke to my pension provider (Guardian)and they have said that they do not have any provision for this to happen. My question is, under new pension plans, can I draw 25% of my fund each year until the funds are all gone? I will be sixty this year and do not want to take out an annuity but think I will be better off doing things this way as the pension payable will only be £1000 pa from Oct 15
Any thoughts please. Steve.

Linton

haulyfryn wrote: »

I have two small pensions one of which is £35k I would like to take 25% of this amount each year from April. I spoke to my pension provider (Guardian)and they have said that they do not have any provision for this to happen. My question is, under new pension plans, can I draw 25% of my fund each year until the funds are all gone? I will be sixty this year and do not want to take out an annuity but think I will be better off doing things this way as the pension payable will only be £1000 pa from Oct 15
Any thoughts please. Steve.

You will be able to from April though not necessarily through your current pension scheme. You may need to transfer it elsewhere first.

jamesd

You can do that but there are three things to consider first:

1. Is there a guaranteed annuity rate associated with the pension? These can pay out much more than normal annuity rates. It appears not since the amount you quoted is about 2.8% of the pension pot size, about right for an RPI inflation linked pension.

2. If you were to choose a level pension on the open market at 60 you'd get about £1,684 a year instead of £1,000. the real value of this would gradually drop over the years due to inflation.

3. Since you reach state pension age after the flat rate comes in you'd have the option of deferring your state pension and having it increase by 5.8% for each year of deferral. That's [STRIKE]partially inheritable by a spouse and it's[/STRIKE] inflation-linked. If you don't need the money sooner or only need some of the money, putting some aside to provide an income while deferring for a few years is normally a good deal for those in normal good health.

You might say use half of the money to boost your income until the state pension starts and half to let you defer for a while to increase the state pension you'll get.

mgdavid

You mention two small pensions - do you have other larger pensions on top of State pension?
What will you live on in old age?

gadgetmind

haulyfryn wrote: »

do not want to take out an annuity but think I will be better off doing things this way as the pension payable will only be £1000 pa from Oct 15

This sounds suspiciously low or is 3% about right for a 60 yo?

kidmugsy

jamesd wrote: »

Since you reach state pension age after the flat rate comes in you'd have the option of deferring your state pension and having it increase by 5.8% for each year of deferral. That's partially inheritable by a spouse and it's inflation-linked.

I must say that at 5.8% I guess that few people will defer, bar those who are going to drop down to a lower tax band. Perhaps one year might be worth it, for someone from a long-lived family. After all, there aren't going to be lots of women qualified to defer a state pension from age 60. Still, I suppose it will depend on what the alternative investments are at the time.

jamesd

Yes, it'll depend on both the alternatives and the desires for protection against long life or increasing inheritance. Compared to annuities it's a great deal. It's also above the often suggested 4%+inflation safe drawing rate for investments. One big catch is the same one as annuities, have, the money is spent and there will be no lump sum available to inherit for that money.

While I'm not keen on the value for money offered by annuities at normal retirement ages, deferring the state pension is fairly decent compared to drawdown, provided there is no requirement for money left over for inheritance.

gadgetmind

kidmugsy wrote: »

I must say that at 5.8% I guess that few people will defer.

I guess most people don't know that you can, and even fewer work out exactly how many bp of return it's worth on an annualised basis.

Triumph13

The key bit of the jigsaw we are missing to answer the OP's question is what other income he has / when he is retiring. If he has unused PA in any years then those are the years / amounts to draw to maximise tax efficiency. Deferring may allow him to manufacture some years with unused PA.

haulyfryn

Thanks for the replies. The reason I want to draw 25% pa is, to get the highest return at a younger age without any tax penalty. If I draw 25% over 10 years I could take out £33,000 tax free. However, if I take the open market option of £1,600 pa I would only get £16,000 for the same period. To answer the other question about how we will live. My wife has a good pension which starts in three years + we have substantial savings and a rental income. We are not wealthy by any means but we have been mortgage free for over twenty years and have saved hard for retirement.

greenglide

Since you reach state pension age after the flat rate comes in you'd have the option of deferring your state pension and having it increase by 5.8% for each year of deferral. That's partially inheritable by a spouse and it's inflation-linked.

Everything I have seen indicates that Extra State Pension earned by deferring the new State Pension (so after 5/4/2016) isn't inheritable at all.

Under nSP only the protected payment (the amount of a starting amount exceeded the nSP full rate) and other remnants of the old system are inheritable.