Scottish Widows Pension with GAR

monza23

Can anyone help me with this please.
I have a Scottish widows pension plan that has a guaranteed annuity rate. I am considering taking the Lifetime annuity and using the GAR as the difference in rates are 4% standard & 11% using the GAR.
If I take 25% tax free on my retirement date and buy an annuity at the same time does the remaining 75% still qualify at the Guaranteed annuity rate.
Thank you in advance for any help

Linton

When you buy an annuity you are given a range of options, one of which is whether you are taking a lump sum and if so how much. So the lump sum is part of the annuity transaction. With an 11% GAR why are you taking a lump sum???

monza23

Thank you, I thinking about taking 25% because it is tax free

Linton

monza23 wrote: »

Thank you, I thinking about taking 25% because it is tax free

Are you a basic rate tax payer?

For each £1000 the annuity will give you £110/per year. Subtract 20% tax leaves you £88. So you will have gained a £1000 lump sum in £1000/88 =11.4 years. After then the annuity will be all "profit". If you are of average health you can reasonably expect to live about 20 years or so after 65.

If you pay 40% or more tax the numbers are rather more balanced.

monza23

Yes I am a basic rate tax payer.
I am looking at taking 25% tax free to edge my bets really. I am not in the best of health and am being treated for COPD ( despite giving up smoking some 10 years ago.
The pension pot is relatively small at £50,500
I have worked it out at:
£12,625 tax free and if the remaining 75% does still qualify for the valuable GAR rate of 11% that will give a yearly income of £4166.00
If the remaining 75% does not qualify it will give me at 4% £1515.00

So I have worked it out that by taking 25% that would equate to 2years 3 months annuity payments, so just edging my bets !!

dunstonh

I thinking about taking 25% because it is tax free

And putting the 25% where?

If you put it in a bank account earning 1% with no tax deducted, will that be better than 11% gross which is 8.8% net?

Linton

The 75% will qualify, like I said the optional lump sum is part of the same deal. I am sure the pension company would be absolutely delighted for you to forego the GAR on 25% of the pot.

xylophone

If you are of average health you can reasonably expect to live about 20 years or so after 65.

But the OP says

I am not in the best of health and am being treated for COPD ( despite giving up smoking some 10 years ago.

https://www.caring.com/questions/life-expectancy-of-copd

OP - what does your doctor say about your general health?

Have you a particular purpose in view for a lump sum?

monza23

That's excactly right xylophone, I plan to treat my grand children to a trip to Lapland this Christmas and enjoy some of lives little luxuries.

I was uncertain wether the remaining 75% would qualify for the valuable GAR and I am waiting for Scottish Widows to confirm this to me. Many thanks

xylophone

http://www.scottishwidows.co.uk/retirement-planning/things-to-consider/know-your-pension/index.html

Have you had your retirement pack giving details of all your options?

monza23

Yes I received the retirement pack along with the wake up letter a couple of weeks ago. It confirms that my policy does have the GAR but I can find no info on wither the GAR is applied to the 75% if I decide to take 25% lump sum.

Many thanks for your comments