which seems my best option of 5

andy610

I was going to take my pension at 55, as a lump sum, but after getting my options it seems I might be best waiting as the pension is only small, my options are
1- An annual pension of £ 1,100 a yr
2- Tax free cash sum of 2,900 with a reduced pension of £780
3- An open market option of £11,500
4- Tax free sum of £2,900 with a reduced open market option £8,630
5- A full cash sum of £11,500 of which £8,621 is taxable and £2,873 is tax free
Does it sound like the best thing to do?

AnotherJoe

It's only going to take ten years or so to move into profit if you take option 1 compared with all the others. And then you'll likely have that another 20 years or so.
So unless you need the lump sum or have poor health, that seems to be your best bet.

ischofie1

No 1 would win for me. ��

xylophone

Is this a defined benefit pension?

If so, would you be suffering an actuarial reduction for accessing it it at 55?

jamesd

First, this is clearly a defined contribution pension meaning that it's invested in investments you can potentially change and that the income you're being quoted is assuming that you buy an annuity. So to translate what you've been told:

A. The current value of your investments is £11,500. You are entitled to take a tax free lump sum of 25% of this, £2,875 and with the remaining £8,625 you can use drawdown, including taking lump sums when you like, or spend some or all of it to buy one or more annuities or take income from drawdown. Age 55 is usually far too young to be buying an annuity and annuities even at state pension age tend to be poor value for money compared to deferring the state pension.

B. Option 1 annual pension of £1,100 a year would mean spending the whole £11,500 to buy an annuity to provide ongoing income. This is surprisingly high, at 9.56% of the pension pot. If the pension pot really is worth £11,500 and this income is right then it looks like a good deal. It is worth asking them why this income seems so high, it might be due to a guaranteed annuity rate that you have on the policy.

C. Option 2 would be tax free lump sum of 25% then spending the rest on the pension. The quoted annuity income level is so good that I suggest not doing this and taking the higher annuity income instead.

D. Option 3 is really the value of the open market pension pot size, open market option would often refer to the income you coul buy on the open market, not the pot size. You can't get remotely close to 9.56% of the pot in annuity income on the open market unless you're in very poor health so forget this option unless you are, it's a clear loser.

E. Option 4 is a variation on option 3 but taking a lump sum first, same negative aspects as 3, ignore it unless your health is poor.

F. Option 5 is taking the whole pot as cash using the UFPLS option that might be what they offer if they don't offer drawdown. It's reasonable enough if that's what you need but depending on your income this year and next it might pay to do it in more than one chunk. But it looks like a bad deal compared to option 1.

Double-check that option 1 is correct and confirm that it's a guaranteed annuity rate and assuming that it's right, option 1 looks to be by far the best option, overriding the usual not good deal for annuities at your age because of the guarantee.

Also check what it might be at a later age. Guarantees can be different at different ages and if you don't need the money waiting might be the best option.

xylophone

First, this is clearly a defined contribution pension

I wonder?

https://forums.moneysavingexpert.com/discussion/comment/37548000#Comment_37548000

https://forums.moneysavingexpert.com/discussion/comment/57436445#Comment_57436445

jamesd

Open market option only applies to defined contribution pensions. Not that it matters much given the high level of income available. A guaranteed annuity rate would be consistent with the apparent age of the product.

andy610

my pension has a valuable guarantee, I started this pension in 1988 and have only paid £3,360 into it as its only £10 a month, Im now 55 surely if i keep paying It for 10 more yrs, it will be worth more also the £1,100 option 1 pension will also be taxed.

mgdavid

andy610 wrote: »

my pension has a valuable guarantee, I started this pension in 1988 and have only paid £3,360 into it as its only £10 a month, Im now 55 surely if i keep paying It for 10 more yrs, it will be worth more also the £1,100 option 1 pension will also be taxed.

Yes if you don't need the money now then don't take it, leave it to grow.
But you didn't include this option on the list in the OP !

coyrls

andy610 wrote: »

my pension has a valuable guarantee, I started this pension in 1988 and have only paid £3,360 into it as its only £10 a month, Im now 55 surely if i keep paying It for 10 more yrs, it will be worth more also the £1,100 option 1 pension will also be taxed.

You need to be sure of the circumstances under which the guarantee applies, it's possible that it specifies both the age at which you purchase and the type of annuity that must be purchased. As you say your guarantee is valuable and so you need to be careful that you meet any requirements needed to secure it.