Maximum Annual Pension Contribution

Laverda3C

Thanks to everybody who has contributed to the thread so far. Some real food for thought.
Some good input on old pension documentation
Apologies, but every answer drives out further questions.
Understand the value of deferring the state pension, but isn’t the additional tax relief on further contributions not of greater benefit today?
Why is taking 25% tax free everybody’s preferred option when interest rates are so low opposed to leaving the money in a fund for future investment & drawdown ?
Looking for a mixed annuity/drawdown for retirement. Most pensions have migrated to a safe investment strategy due to my age ie cash & bonds. For drawdown maybe in 2-5years should I return to a medium risk strategy?
Currently in the process of engaging an IFA. Have seen previously that they have access to better annuity rates than via the web - is that true?

dunstonh

Why is taking 25% tax free everybody’s preferred option when interest rates are so low opposed to leaving the money in a fund for future investment & drawdown ?

You can put the money into a stocks and shares ISA with the same investment and charges and get it tax free.

If you dont actually need the lump sum then you can do phased drawdown instead.

Looking for a mixed annuity/drawdown for retirement. Most pensions have migrated to a safe investment strategy due to my age ie cash & bonds. For drawdown maybe in 2-5years should I return to a medium risk strategy?

That requires a larger discussion about your objectives and what you are doing as well as your capacity for loss, behaviour and knowledge.

Currently in the process of engaging an IFA. Have seen previously that they have access to better annuity rates than via the web - is that true?

Yes. DIY sales (internet) still allow the seller to take a commission. So, the annuity rate is reduced to factor in that commission. There is no cap on that commission either. IFAs can deduct their fee from the pension pot (usually best to) which will reduce the fund value but the annuity rate will not be reduced due to commission. So, for pots of around £25k plus, the IFA should work out cheaper (as the fee would be lower than the commission).

Any chance you can change your font to the default. Your text appears tiny on large screens. It is difficult to read.

jamesd

Laverda3C wrote: »

Understand the value of deferring the state pension, but isn’t the additional tax relief on further contributions not of greater benefit today?

You can do both if you want to.

Laverda3C wrote: »

Why is taking 25% tax free everybody’s preferred option when interest rates are so low opposed to leaving the money in a fund for future investment & drawdown ?

Because it's tax free now and can be invested in the same investments outside the pension but inside a stocks and shares ISA as inside a pension, with a few exceptions.

Laverda3C wrote: »

Looking for a mixed annuity/drawdown for retirement. Most pensions have migrated to a safe investment strategy due to my age ie cash & bonds. For drawdown maybe in 2-5years should I return to a medium risk strategy?

If you were planning for longer term drawdown or investment then yes, using more investments would be appropriate. It greatly depends on your specific plans and if you were planning to use drawdown and defer the state pension I'd be suggesting a mixture of cash for the short term plus investment for the longer term. But it appears that for a while at least you're still planning to work so that might eliminate the cash part of the requirement anyway.

The big risk to be considered is that there could be a large drop in the value of investments just before you spend the money on an annuity. That you're considering annuity greatly increases the risk of using investments. It's much lower if you're planning to defer the state pension or use longer term drawdown because those don't have a single date deadline and allow time for recovery from a drop. This risk is mitigated a bit because you appear to be flexible about retirement time, reducing the tie to a specific date aspect of the risk.

Laverda3C wrote: »

Currently in the process of engaging an IFA. Have seen previously that they have access to better annuity rates than via the web - is that true?

Yes but what they don't have access to is the even better rates you get for deferring the state pension. Friends don't let friends who are in normal good health buy an annuity when they can defer the state pension instead because it pays close to twice as much income for the same cost as a comparable annuity. Just compare the rates you can get to an annuity to 5.8% inflation-linked for life that state pension deferral buys you.

The catch is the time until you reach state pension age, which has to be factored into the calculation. Even so, annuities provide such poor income levels that at your age it's unlikely that an annuity could beat it for those in normal good health.

However this doesn't necessarily apply where there is an obligation on the pension provider to pay a guaranteed minimum pension or where there is a guaranteed annuity rate available. Those can beat the state pension deferral option.

Laverda3C

Before I post more is this font more reader friendly?