New Rules - £60,000 Pension

ianpalmer2007

My wife is 55 in a couple of months. Her pension is worth £60k with Standard Life. We stopped working a few years ago (I am older) and we have planned our retirement with 2 modest rental properties, my private and state pensions.

So we want to take all her pot and I thought as she only uses £3,500 of her annual tax allowance (rental income) she should take:

1. The 25% lump sum = £15,000
2. Then approx £7,500 a year over the next 6 years to use all her tax allowances before she is eligible for her state pension.

Is my logic right and what happens to the "pot" as she is taking it over 7 years - is it still invested with potentially high management charges and subject to market risk?

Finally can I arrange this through S Life or do I have to shop around?

Any advice gratefully received :-)

PensionTech

What you are proposing is called a flexi-access drawdown arrangement.

You've understood the tax implications well. However, be aware that Standard Life may not offer drawdown. You'll have to ask them whether they do or not, and what the charges are for doing it through them. If they don't offer it, you may have to transfer the pot to a provider that does. Even if they do, you can shop around to see if there is a provider that offers lower charges and/or a better range of investment options.

The pot does stay invested during drawdown, but you can move it into lower-risk investments if you like.

There is a big caveat to all of this: you need to make sure that the Standard Life pot doesn't come with any guarantees or underpins, such as a Guaranteed Minimum Pension (GMP) or Guaranteed Annuity Rate (GAR). If it does, you would need to pay for regulated financial advice before transferring it or putting it into drawdown, and it's much more likely that drawdown will be a bad idea if the pot does come with one or more of these guarantees (also called "safeguarded benefits").

ianpalmer2007

PensionTech - many thanks for your reply.
There are no guarantees associated as this pot was an amalgamation of three very small pots about 6/7 years ago when we did take advice.

I just wasn't sure if HMRC could get their hands on it if my wife kept her withdrawals to below the allowance threshold - and it appears that at this time it would be free of tax :-)

Thank you

kidmugsy

I suggest that your wife also considers contributing an annual £2880 net (£3600 gross) to her pension after she's moved it to a convenient provider. That will let her extend the tax-free fun.

And since I'm speculating freely on someone else's financial position: if you are drawing the old-style State Pension, have you considered deferring it for a couple of years? Each year of deferral brings you an extra 10.4%.

EdGasket

kidmugsy wrote: »

And since I'm speculating freely on someone else's financial position: if you are drawing the old-style State Pension, have you considered deferring it for a couple of years? Each year of deferral brings you an extra 10.4%.

Assuming you don't die; can't defer forever you know. Personally I wouldn't defer even if I didn't need the money as it would take a long time to pay back that lost year or years of pension that you give up and you might not live long enough to break-even. I am sure the Gov. has worked out the sums so as not to be giving anything away.

greenglide

I am sure the Gov. has worked out the sums so as not to be giving anything away.

The deal on the old State Pension is amazingly good which is why they have watered it down with the coming of nSP.

Obviously you have to take life expectancy into account. You do seem to have a very pessimistic view of everyones life expecteny.

Under the old scheme increments are also inheritable. The guaranteed nature of the reward, especially its index linking, is valued by many as well.

dunstonh

A lot of legacy plans do not facilitate income drawdown. So, they would need transferring into a modern plan that does. Whilst Std Life can do this internally using one of their own plans using their in house salesforce, it will have costs (and Std Life plans are not that competitive).

ianpalmer2007

I had an idea Standard Life might not be as competitive as some others and a quick comparison shows Royal London coming up well.

We basically will be putting all of the money into enhancing properties so just want to get it out as quickly and as tax efficient as possible as it will be reinvested wisely. With that in mind can she take the 25% (£15,000) AND her unused personal allowance in year 1 (circa £6500) or does the £15,000 negate that opportunity?

ischofie1

Yes she can take her TFLS & her tax allowance in year 1.

dunstonh

I had an idea Standard Life might not be as competitive as some others and a quick comparison shows Royal London coming up well.

Royal London are the UK's largest provider of income drawdown. There is a good reason for that. Not just cost (and they are consistently up at the right end, even though they are not the absolute cheapest). They do things quickly and efficiently. Very un-insurance company like.

zagfles

ianpalmer2007 wrote: »

I had an idea Standard Life might not be as competitive as some others and a quick comparison shows Royal London coming up well.

Be aware that RL insist you use an adviser, so that's another cost to add.

We basically will be putting all of the money into enhancing properties so just want to get it out as quickly and as tax efficient as possible as it will be reinvested wisely. With that in mind can she take the 25% (£15,000) AND her unused personal allowance in year 1 (circa £6500) or does the £15,000 negate that opportunity?

Yes.