Take annuity or use savings

bigadaj

singhini wrote: »

Can I clarify the two points above please. I want to take early retirement when I turn 55 in July 2017. I have 4 pension pots with various company's and my intention in the next 4 months is to transfer them all into a SIPP and thus I will have one pot of cash in a SIPP and no other pension pots. I intend never to work again from the age of 55 (July 2017) and will have no income from any other source.

so my question is:-

Can I draw down 25% tax free on my 55th birthday (which is point one from your previous post). And then each subsequent tax year can I take out additional money to the value of the income tax free allowance i.e. £11,000 in the case for 2016/2017 (which is point two from your previous post).

what I am trying to understand is if its possible to take all my pension tax free over the course of about 15 years i.e. draw 25% initially tax free and then the rest of the money also tax free aslong as I don't go over my personal allowance

The rules allow it, just need to make sure your chosen provider does, and if so what their charges would be for undertaking your wishes.

jamesd

singhini wrote: »

Can I draw down 25% tax free on my 55th birthday (which is point one from your previous post). And then each subsequent tax year can I take out additional money to the value of the income tax free allowance i.e. £11,000 in the case for 2016/2017 (which is point two from your previous post).

Yes.

singhini wrote: »

what I am trying to understand is if its possible to take all my pension tax free over the course of about 15 years i.e. draw 25% initially tax free and then the rest of the money also tax free aslong as I don't go over my personal allowance

Yes. Even if you needed more you could consider doing some VCT buying to eliminate the income tax cost.

singhini wrote: »

I want to take early retirement when I turn 55 in July 2017

Also run your plans through cFiresim with fees increased by 0.5% above default level to allow for the difference between UK and US investments (and maybe change the investment mixture as well) as a check on the viability of your planned income levels.

You also have £720 a year of tax free money within your personal allowance available if you continue to make pension contributions at the 3600 gross a year limit for those with no eligible income. It's a nice use of savings or, within the limits for that, tax free lump sum money.

singhini

Thank you so much guys for your help, really appreciated.

Knowing this information gives me hope with my pension money. I got an annual letter from one of my pension companies and it said something like "when you retire at your expected age of 65 your pot could possible be worth £150,000 and you could realise a pension of £5,000 a year"

That's useless. I'm going to be 65 and get £5,000 PA (and the pots worth £150,000) Their bonkers

I'm probably going to die by 75 (my mum died 66, dad 67 and sister was 45, what hope do I have).

At least now, if the pot was say £100,000 when I turn 55, I can have 25% tax free (£25,000) and then lets say roughly £11,000 per year tax free which means the remaining £75,000 will run out in 7(ish) years

Then I still have savings and the state pension and I can downsize my house to a camper van and live off the proceeds of the house sale.

I don't understand why I would buy an annuity?

jamesd

You'd buy an annuity because that's what people were traditionally forced to do and the annuity selling firms exploit people's ignorance of alternatives like state pension deferral to sell them still, even though the relevant regulations require them to act in the best interests of their customers. They simply turn a blind eye to the competition they know beats their product.

That doesn't mean that you should never buy an annuity, though. There are times when they offer good value for money, just not to those in or close to normal good health around normal retirement ages. I fully expect to buy one ore more should I live long enough or be in sufficiently poor enough health that it makes sense for me.

If you experiment with the tools like cfiresim that model sequence of return risk you'll find that having guaranteed income purchased at a sensible price can increase the safe withdrawal rate from the rest of the pot. That's well worth knowing and makes state pension deferral particularly attractive given that it also offers good value for money for those in or close to normal good health.

The annual letters sent by pension firms have to use unrealistic assumptions, like purchasing a dual life inflation-linked annuity. Those give low income levels and very few people buy them. Well under half of what state pension deferral pays, maybe even under a third by now, if in normal good health.