Full pension withdrawal avoiding 40% rate

jamesd

Before using even the 25% to help her you should also make £8k net of pension contributions into a personal pension. Then you get basic rate tax relief added, even as a person not paying income tax, and end up with £10k in the pension. You can then in a few weeks take out the £10k.25% tax free, the rest taxable income. If not working all of that £10k would be tax free and you'd end up with a £2k profit for a few minutes work.

The maximum you can pay in is your earned income or £3,600 gross, so 80% of those net. Which means you can only continue paying in £10k if you're earning 10k and that means that you can't really continually make £2k because the earnings use up your personal allowance. Instead for 8k net/10k gross paid in you'd get out the 2500 tax free lump sum and pay 20% income tax on the 7500, leaving you with £8,500 total, a gain of £500. Every year so long as you have the income.

There's also a cap of £10k of gross pension contributions after you take out more than the 25% tax free lump sum from any pension, so you can't do this on more than 10k a year unless you wait to take out the money.

jamesd

webtrekker wrote: »

Taking my 25% tax free lump sum then taking the rest in lower amounts over subsequent years is what I really wanted to do, but Royal London doesn't offer a Drawdown scheme and my IFA (from Newcastle Building Society) is dragging his feet because he thinks the GAR is the best offer.

Find out the full terms of the GAR and we can tell you whether he looks right or not.

webtrekker wrote: »

Do I need a Drawdown scheme to enable me to access the remainder of my pot as and when needed, or will Royal London just retain the pot and allow me to make further withdrawals in future years?

You need a drawdown scheme, the law won't allow Royal London to do it except in a drawdown scheme.

Even if the IFA disagrees remember that you can do the transfer. The law only says that you must take independent financial advice, not that you must follow it.

But don't just act on that, find out the GAR terms and tell us what they are and we can agree or disagree with the IFA about whether the GAR is or isn't your best deal.

webtrekker

Again, many thanks jamesd. I realise you and others are really trying to help me out here and I'm very grateful for that. I've got all the latest paperwork from Royal London and will post all the info I have on the GAR later today when I have more time.

Malthusian

webtrekker wrote: »

my IFA (from Newcastle Building Society)

IBDH... it seems unlikely that the guy from Newcastle Building Society is an IFA. Independent Financial Adviser is a protected term and to describe themselves as an IFA an adviser must be able to advise on more or less any kind of retail investment product no matter what it is or who offers it.

The incredibly small print on Newcastle's website suggests your adviser is almost certainly a "restricted adviser" who can only advise you on products offered by Newcastle or companies affiliated with them. There may be better options available.

atush

At the risk of Agreeing with James,

Use the 25% TFLS to help your daughter. And either take the gAR and use that income to live on, and use your current ongoing income to save into a pension (and maybe help your daughter. Or if the GAR isnt as good as decribed, transfer to DD and use the money as and when, hopefully stying within your PA.

webtrekker

Here are some more accurate figures -

Pension Pot: £63,535.80

Therefore TFLS is: £15881.45

I've been given 4 options for Guaranteed Annuity:

A. £245.25 per month fixed. Guarantee period: 5years. Dependant's pension: None
B. £167.68 per month. Escalation:3%. Guarantee period: 5years. Dependant's pension: None
C. £225.21 per month fixed. Guarantee period: 5years. Dependant's pension: 50%
D. £149.65 per month. Escalation: 3%. Guarantee period: 5years. Dependant's pension: 50%

Another question ...

If I take the TFLS now, can I take further lump sums at a later time with Royal London, or would I have to transfer the pot to a provider other than Royal London in order to take advantage of a Drawdown scheme?

jamesd

You'd have to transfer. I'll do the calculations on the annuity options later if someone doesn't beat me to it, the key question being whether any of them matches or beats the 5.8% plus inflation from the state pension deferral option.

webtrekker

Thanks jamesd. I'll look in later when I've finished work.

kidmugsy

jamesd wrote: »

I'll do the calculations on the annuity options later if someone doesn't beat me to it, the key question being whether any of them matches or beats the 5.8% plus inflation from the state pension deferral option.

My instinct is to favour inflation-linking over 3% p.a. escalation. I remember the seventies. Added to which, deferral at 5.8% p.a. looks superior to the GAR offers anyway.

jamesd

kidmugsy wrote: »

My instinct is to favour inflation-linking over 3% p.a. escalation. I remember the seventies.

Same here.

kidmugsy wrote: »

Added to which, deferral at 5.8% p.a. looks superior to the GAR offers anyway.

Maybe you could work out the percentage rates for the various options? I have to run for a while.

If state pension deferral is the best looking option a tied advisor wont' be able to recommend it officially because I assume it's not an option sold buy the firm they are working for or its panel. Might also not be permitted to give transfer advice.