Aviva says they don't know how to implement the new pension rules???

dunroving

A friend has a pension with Aviva and needs to draw money from it to buy a new car. Her old car was wrecked by a drunk driver last month and it was only worth £1,000. She doesn't have enough in the bank to purchase a newer car but doesn't want to buy a banger.

Aviva was pushing her to take a lump sum and convert the rest to an annuity. When asked about the new pension freedoms, their response was they are still figuring out how to implement the new rules so at the moment they are unable to allow her to simply say, "Please can I have £5,000 from my 25% tax-free portion" They claimed the government still hasn't told companies how to implement the new rules.

Does this sound right?

jamesd

It sounds wrong. Her best pension option is probably to transfer to a place that implements the new rules so she can do something more sensible than drawing the pot and throwing money away by buying an annuity at what I presume is a young age.

Firms don't have to implement the new rules immediately or at all and the solution is to transfer to the firms that do. Partial transfers are possible.

Watch out for charges traps. HL for example has decent drawdown charging unless you close the account within a year. It'd be fine for her need since she doesn't need to close within a year.

dunroving

jamesd wrote: »

It sounds wrong. Her best pension option is probably to transfer to a place that implements the new rules so she can do something more sensible than drawing the pot and throwing money away by buying an annuity at what I presume is a young age.

Firms don't have to implement the new rules immediately or at all and the solution is to transfer to the firms that do. Partial transfers are possible.

Watch out for charges traps. HL for example has decent drawdown charging unless you close the account within a year. It'd be fine for her need since she doesn't need to close within a year.

Thanks, James. She is 63, taking state pension and earning between next-to-nothing and I think about £5,000+ each year through self-employed work. So she fits the type of person who needs to be able to withdraw money flexibly. In years where her self-employed earnings take her above the tax allowance she would tap her 25% tax-free portion of the pot and in others she would either draw from an Aegon bond (*see below) or from the taxable portion of her pension pot (which of course would not be taxable because she would be below the threshold).

*She also has a bond with Aegon, which is taxable on withdrawal, but allows partial withdrawals.

In this case, she has been put in a situation where she really needs about £5k relatively quickly but it's driving her crazy that she can't withdraw any of her 25% tax-free.

Is there a list somewhere on MSE of pension providers who are already implementing the new flexible rules (or will do after April 6th)?

jamesd

I don't know of such a list. It strikes me that maybe she should consider deferring her state pension and drawing on more of the capital in the pension while she does that. The 10.4% increase per year of deferral is hard to beat for those who want a higher secured income for life.

She should definitely not consider buying an annuity from Aviva. That's a rip-off compared to deferring the state pension at her age, unless she is so sick that she'll die within a few years, when an enhanced annuity might pay more.

Given her age and ability to defer the state pension it might well be a better deal for her to buy a car on credit. The 10.4% for deferring lasts for life, while a car finance deal only has to be paid for for the duration of the deal.

xylophone

http://www.ftadviser.com/2015/03/23/ifa-industry/companies-and-people/another-provider-unveils-post-april-pricing-ANAJUYHMqJQJydqxvKaxEJ/article.html

There seems to be some information on Aviva above as well as others.

dunroving

jamesd wrote: »

I don't know of such a list. It strikes me that maybe she should consider deferring her state pension and drawing on more of the capital in the pension while she does that. The 10.4% increase per year of deferral is hard to beat for those who want a higher secured income for life.

She should definitely not consider buying an annuity from Aviva. That's a rip-off compared to deferring the state pension at her age, unless she is so sick that she'll die within a few years, when an enhanced annuity might pay more.

Given her age and ability to defer the state pension it might well be a better deal for her to buy a car on credit. The 10.4% for deferring lasts for life, while a car finance deal only has to be paid for for the duration of the deal.

Yes, that is exactly the advice I have given her. She wants to preserve some of the capital in her bond and pension but if she defers her pension for about 5 years it will rise enough to meet her basic needs without needing to draw a lot of her capital.

I have also suggested that she look into credit for the car purchase but am not sure she would secure a loan with such a low and inconsistent income.

HappyHarry

She could look at using the bond to fund that car purchase in the short term.

If the bond is an 'onshore bond', then basic rate tax is already paid. Additionally, in years when her income is below the basic rate tax level, this is not a tax-efficient plan, as the basic rate tax paid within the bond can not be reclaimed.

If the bond is an 'offshore bond', then basic rate tax will need to be paid on surrender.

Whatever kind of bond, it is not as tax-efficient as an ISA, or a pension tax-free lump sum, so accessing the bond is likely to be a better option for her.

dunstonh

Aviva was pushing her to take a lump sum and convert the rest to an annuity.

I have seen the aviva documentation. Indeed, I have a pack on my desk at the moment. They do not push anything. They supply info that is asked. If the plan only has an annuity option then that is what they will supply. They also make you aware of other options based on current legislation.

When asked about the new pension freedoms, their response was they are still figuring out how to implement the new rules so at the moment they are unable to allow her to simply say, "Please can I have £5,000 from my 25% tax-free portion" They claimed the government still hasn't told companies how to implement the new rules.

Does this sound right?

As the rules do not come into effect until next week, the telephone staff will be working on 2014/15 rules and not 2015/16 rules. A lot of the legacy plans will not allow many of the new options. They require transfers to those that do. However, it doesnt sound like she is after a drawdown option but a full fund withdrawal. So, her plan will support that.... from next week.

Is there a list somewhere on MSE of pension providers who are already implementing the new flexible rules (or will do after April 6th)?

Virtually all the ones open for new business will.

dunroving

HappyHarry wrote: »

She could look at using the bond to fund that car purchase in the short term.

If the bond is an 'onshore bond', then basic rate tax is already paid. Additionally, in years when her income is below the basic rate tax level, this is not a tax-efficient plan, as the basic rate tax paid within the bond can not be reclaimed.

If the bond is an 'offshore bond', then basic rate tax will need to be paid on surrender.

Whatever kind of bond, it is not as tax-efficient as an ISA, or a pension tax-free lump sum, so accessing the bond is likely to be a better option for her.

That's interesting. I will have to check the details on the bond but I know the Aegon woman on the phone said any withdrawals would be liable for tax and that Aegon would not deduct tax at source. The Web page my friend access when she logs into her account is not very informative or user - friendly.

jamesd

dunstonh wrote: »

I have seen the aviva documentation. Indeed, I have a pack on my desk at the moment. They do not push anything. They supply info that is asked. If the plan only has an annuity option then that is what they will supply. They also make you aware of other options based on current legislation.

How do they describe the option of deferring the state pension, which is available based on current legislation?

I assume that they don't mention it at all but it'd be nice to be wrong about that.

dunstonh

How do they describe the option of deferring the state pension, which is available based on current legislation?

They do not and it would be wrong for them to do so. Their remit is to provide information about their product.