Section 32 pension dilemma

simon758

Can anyone offer any thoughts on the following:
I have a section 32 with profits pension policy with Prudential (formerly with ScotAm until the late'90s when the Pru took them over). There is a guaranteed 4% annual increase to the unit value of the fund, which in May 2016 was worth £84k. I can therefore confidently predict that this will be worth c£111k by my chosen retirement date in July 2023. What is unknown is the likely value of the final bonus. Again, in May this year, the final bonus was worth £63k giving me a total fund value of £147k. The bonus has been growing steadily year on year, averaging about 10% growth each year for the last 10 years (seems like pretty good performance?). Therefore, if I assume even half this continued level of growth to the final bonus, by the time I reach retirement age, I could be looking at a total fund value approaching £200k.
Now to my dilemma: I ideally need to access some of the capital in this pension over the next few years (approximately £12k per year for 3 years from 2018 to 2021) to help bridge my finances between now and some other DB pensions and lump sum payments kicking in. I have thought about moving the funds into a flexi-drawdown account, but would have to do this through an IFA (Prudential rules dictate this). Another suggestion made to me by a Pension Wise adviser was to think about splitting the fund into 3 separate pots of £50k each and taking the 25% tax free cash each year as I need it. I'm unclear about how I would go about this though - it doesn't seem particularly straightforward to open a new pension policy without using an IFA.
If anyone can suggest the best way forward, I'd be very grateful for other thoughts.

dunstonh

I can therefore confidently predict that this will be worth c£111k by my chosen retirement date in July 2023.

Is the 4% before or after charges?

Therefore, if I assume even half this continued level of growth to the final bonus, by the time I reach retirement age, I could be looking at a total fund value approaching £200k.

Play it safe, dont include the final bonus.

but would have to do this through an IFA (Prudential rules dictate this).

Prudential rules to not dictate it. You have safeguarded benefits and the regulations are that when you have these and the value is over £30k then you have to seek advice.

Another suggestion made to me by a Pension Wise adviser was to think about splitting the fund into 3 separate pots of £50k each and taking the 25% tax free cash each year as I need it. I'm unclear about how I would go about this though - it doesn't seem particularly straightforward to open a new pension policy without using an IFA.

Would still need advice as it does not avoid the safeguarded benefits issue and not sure what benefit that would be to you doing that. Do remember that pensionwise should not be presenting advice solutions. I think this person has overstepped their remit here.

If anyone can suggest the best way forward, I'd be very grateful for other thoughts.

Use an IFA. Yes it will cost but the annual charges of the alternative are likely to be lower. Depending on your risk profile, timescale, objectives etc, you may well find that the Pru plan is not all you think it is. e.g. if its 4% before charges and ts 1% charged then a modern unit linked plan may offer better growth potential without being handicapped to pay for guarantees you may not need or may not be that valuable. I say that with caution as you may be comfortable with that. Whereas an experienced investor may feel otherwise. Also, modern plans are often cheaper (at around half the cost of many older ones). So, the advice fee may be recouped in time.

xylophone

http://www.pruadviser.co.uk/content/knowledge/oracle_archive/oracle-technical/oracle-tech-june/fca-transfer-rules/

https://www.unbiased.co.uk/

AnotherJoe

Is the final bonus you've been allocated so far fixed and cannot be withdrawn? If so whatever others say about the plan, 10% a year over the last 10 years seems very good to me, I wouldn't be wanting to give that up.

You are only looking for £36k for 3 years from 2018 to 2021. You could probably get a loan for all or a goodly portion of that at a similar percentage to the Pru's guaranteed rate of 4%, then you can pay it off once your other pensions kick in and you get the bonus and can use that to pay it off.

Or, could you get a part time for those three years? You are only looking at £12k a year. Or a mixture of both, a job for 2 days a week, a smaller loan?

simon758

Many thanks to you all for your responses on this and the helpful links. I will give this more thought and I certainly intend to seek advice from an IFA before making any firm plans. As regards the part-time job suggestion, I should point out that I am currently working full-time at the moment and intend to continue doing so until I reach 65 (I'm now 58). I've been doing some forward planning and have anticipated some big financial commitments in the years mentioned, hence the need to draw down some funds from this pension. I will check the charges and see if the 4% guarantee is before or after (I suspect it is before), but it is interesting to hear your respective thoughts on the bonus element. Thank you again.

AnotherJoe

simon758 wrote: »

Many thanks to you all for your responses on this and the helpful links. I will give this more thought and I certainly intend to seek advice from an IFA before making any firm plans. As regards the part-time job suggestion, I should point out that I am currently working full-time at the moment and intend to continue doing so until I reach 65 (I'm now 58). I've been doing some forward planning and have anticipated some big financial commitments in the years mentioned, hence the need to draw down some funds from this pension. I will check the charges and see if the 4% guarantee is before or after (I suspect it is before), but it is interesting to hear your respective thoughts on the bonus element. Thank you again.

That is but one option from many. Not sure why you've fixed on it when it may be financially a poor choice compared to, say a loan at lowish rates over 5 years, thus not losing a valuable final bonus worth much more than temporary use of much less money for a shorter time. Or short term equity release. No doubt there are others.

Your question would have been better posed as
"I have the need for £36k over 2018-2021, at which point I will come into a lump sum from a pension and can repay it, what are my options?"

Rather than assuming liquidating the pension is the answer. Maybe it is, but you havent convinced me.

It might even be you dont need that £36k, or you can save it ahead of time, or the need or expenditure can be postponed, or there are other ways to achieve that aim. eg lets say you are planning on financing a childs university time, maybe them taking a loan is better. etc.

simon758

Good challenges!