Annuity rates

Froglet

kidmugsy wrote: »

Triumph13 is on to good one. Another thing to consider is doing pension drawdown so that your annual income is always below the personal allowance. That way you get it all out tax-free.

Meantime you keep topping up the pension with £2880 net p.a. (£3600 gross) so that you can carry on the procedure until you are 75. This stunt makes you a profit of £720 p.a. which I'll bet looks pretty decent compared to annuity rates.

Thanks.I could do that on the larger pension I have,that is with Legal and General.I don't pay in the full amount.Ever since hubby took early retirement we don't really have the means of paying £240 in per month.


The pension drawdown idea,would I need to go to an ifa for that on such a small amount? And don't they have a minimum that you need to do that,or at least for it to be advantageous.

Froglet

atush wrote: »

If I was gpoing to buy an annuity, I'd b looking to do so after age 65, not before.

If you are looking to buy soon, have you moved your pension to cash?

It is a with profits pension,is that similar? The larger one isn't though.Should I be swapping to a cash fund?

Triumph13

A year's NIC costs £700 odd to buy and pays £200+ a year for life so it is crazily good value. If you have contracted out years making your starting amount at April 2016 on the old method higher than the new then pre April 2016 years are worth £3.98 a week and post April 2016 ones worth £4.44 a week. If your starting rate was higher on the new method then every year is worth £4.44. I believe you can buy back to 2006 so cash out the pension and use most of it to buy NIC contributions.

dunstonh

It is a with profits pension,is that similar

You mean its a pension that is currently invested in a with profits fund.

No, its not similar as a cash/deposit fund cannot lose much. A with Profits fund could have its final bonus accrued to date wiped out.

Froglet

Triumph13 wrote: »

A year's NIC costs £700 odd to buy and pays £200+ a year for life so it is crazily good value. If you have contracted out years making your starting amount at April 2016 on the old method higher than the new then pre April 2016 years are worth £3.98 a week and post April 2016 ones worth £4.44 a week. If your starting rate was higher on the new method then every year is worth £4.44. I believe you can buy back to 2006 so cash out the pension and use most of it to buy NIC contributions.

Thanks.Yes that does sound worth doing.I think a few were contracted out,but I didn't pay NI for much of my working years due to not earning enough.I will only have one more year after this April,but most are pre that.So if for example I paid £7000 plus for 10 years I would get £40 extra per week ?

Froglet

dunstonh wrote: »

You mean its a pension that is currently invested in a with profits fund.

No, its not similar as a cash/deposit fund cannot lose much. A with Profits fund could have its final bonus accrued to date wiped out.

Oh ok.Last year the final bonus was worth £2,670.How could it be wiped out?

jamesd

Froglet wrote: »

We are only talking about 13k though,my larger pension is about 30k.So in the scheme of things not a great deal but just wondered what people thought.

Just defer the state pension once you can. There's no credible possibility of annuity rates almost doubling to beat what you can get from deferring. But....

Froglet wrote: »

Thanks.To be honest,i know you can do that but as I only have 16 years and you need 35,it would cost so much I am not sure if it is worth it.Maybe a few years might be.

It's worth it. They are a better deal than your husband is getting from his state pension deferral and even more better than your own deferral deal.

kidmugsy wrote: »

Meantime you keep topping up the pension with £2880 net p.a. (£3600 gross) so that you can carry on the procedure until you are 75. This stunt makes you a profit of £720 p.a. which I'll bet looks pretty decent compared to annuity rates.

That's a great deal also, anyone aged between 55 and 75 can do it though only those with available personal allowance will get the maximum £720 a year benefit. If you lack the cash but have credit it's such a good deal that it's worth borrowing to pay the money in then taking it out again once the tax relief has been applied. Or sooner if the borrowing has an interest cost and he scheme lets you take it out in chunks, as most do. A one chunk scheme that makes this easy and has no charges that matter for this is Virgin's but there are plenty of others. Anyone who does this will have their annual allowance for pension contributions reduced to £10k a year and that may matter or those who are still working.

In priority/benefit order these options are:

1. the repeated pension contribution then withdrawing to get up to £720 of extra income a year.
2. buying past years.
3. state pension deferral.

If any are unaffordable then something like an equity release mortgage is likely to be a good deal to get the job done if that's what it takes.

Froglet

Thanks for all that James.Got a bad head at present so will absorb all you have said and comment on it tomorrow at some point.


Am very grateful for everyone's input.

kidmugsy

Froglet wrote: »

The pension drawdown idea,would I need to go to an ifa for that on such a small amount?

No; no need for an IFA. Check whether L&G allow drawdown on the pension you have with them. If they don't, check whether there are any disadvantages or fees or penalties if you transfer to another provider. If all's OK, do a transfer. We use Hargreaves Lansdown; I also read good reports about Cavendish Online and AJ Bell. The procedure, at least at HL, is that you complete a form for the new provider and they handle all the rest. You'd want your funds held simply as cash at the provider if you plan to draw it out at the maximum rate consistent with avoiding income tax.

Sample calculation. Total pot: £30k. Tax-free lump sum to withdraw @25% = £7500. Income drawdown to take in first year = Personal Allowance vs income tax (£11k) less earnings (approx £3k) = £8000. That £15500 is available for e.g. buying more years of National Insurance, and contributing £2880 to a pension.

If you take the whole £8k in one swoop the provider will have to take an emergency rate of tax off it, so the best idea is to take out one twelfth of that at first and then, once the provider has been supplied by hmrc with the correct tax code, drawdown the remaining eleven twelfths. Otherwise you'd have the irksome business of claiming back the tax paid.

Froglet wrote: »

And don't they have a minimum that you need to do that,or at least for it to be advantageous.

Nope. But you should phone/write/email the provider to check whether you could lose any of your final bonus if you transferred this pension too.

In your shoes I'd also read carefully anything Dunstonh volunteers about With Profits pensions.

atush

Froglet wrote: »

Thanks.To be honest,i know you can do that but as I only have 16 years and you need 35,it would cost so much I am not sure if it is worth it.Maybe a few years might be.Something I will look into though.

does your 16 include years 16-18 (ie 3 extra)? Are you of poor health so much you wont get 15-20 years?

dint dismiss this before a proper evaluation.