GAR Not wanted

jamesd

That still doesn't really explain why taking the 25% tax free lump sum from the Aegon product with no advice required for that and then taking the GAR would cause any cost to the SIPP to get the 25%.

You do know that the advice requirement:

1. Does not apply to whether you take the 25% or not. The 30k threshold is on the remaining 75% in this case
2. Does not apply after the GAR expires. There usually is some time limit

If the amount is close to 30k then deliberate incurring of fees, bad investing or waiting for a downturn to reduce the value to under 30k may be viable and cheaper than advice.

Malthusian

If you are "playing with" individual company shares then "making more than you've lost" is not remotely good enough. We should be talking yachts and round the world cruises (or whatever your idea of being able to live without worrying about money consists of). High risk needs to mean high reward.

One or two years of bad share picks combined with 11% drawdown will destroy your retirement plans.

Anyway, to answer your question, you are required to take advice, but you are not required to get an advisor to say that it is a good idea. Some providers will accept business without a positive recommendation if an IFA confirms they have provided advice (though not all) and some IFAs will provide this confirmation as a one-off transaction (though not all). You will need to shop around.

Your other option is to take the GAR knowing that 11% gross per annum is a very good return (even with capital forfeited on death), and you can adjust the investment of your other pension funds to take into account the security offered by the GAR.

Malthusian

jamesd wrote: »

2. Does not apply after the GAR expires. There usually is some time limit

Sometimes but I wouldn't go so far as "usually". In some policies the GAR must be taken at a specific date or it is lost, in others it can be taken at any time from a specific date and increases with age.

Amolad

Thanks for your comments Jamesd


That still doesn't really explain why taking the 25% tax free lump sum from the Aegon product with no advice required for that and then taking the GAR would cause any cost to the SIPP to get the 25%.


The Aegon fund size is about £75K. If I don't complete the transfer I would need to sell high-yielding, well-performing (so far) stocks to the value of £75K to raise the balance of the tax-free cash.


The GAR expires if/when I reach 75 which (fortunately) isn't round the corner yet.

Amolad

Malthusian,


I don't think my playing with company shares is as high risk as it may seem. Since I hold over 80 shares, including at least 50% of the FTSE 100, in effect I'm managing my own fund which is broadly moving with the FTSE. However with dividends, taking advantage of market and company fluctuations, and taking up promising IPOs, beating the FTSE by 8-10% per year is achievable (although BREXIT sure didn't help me).


I also don't have all my eggs in the pension basket


From reviewing the actual government regulation the significant para:


"Safeguarded benefits offer additional security and often valuable guarantees that are lost if the member transfers or converts their benefits to acquire flexible benefits, or accesses their benefits using the new flexibilities. To ensure that individuals who are considering any of these options are fully aware of what they would be giving up, the Government introduced a new safeguard on 6 April 2015 requiring them to take appropriate independent financial advice before doing so."


is used so I think you're right it is up to IFA's themselves as to whether they insist on a "Full Advice" basis and I will indeed shop around some more. Thanks for your comments.

"

jamesd

Amolad wrote: »

The Aegon fund size is about £75K. If I don't complete the transfer I would need to sell high-yielding, well-performing (so far) stocks to the value of £75K to raise the balance of the tax-free cash.

What balance? You can take 25% tax free lump sum from the 75k with no advice and that leaves nil as the remaining tax free cash permitted and a transfer won't get you any more than that.

But maybe you're thinking of the tax free cash from the other pot and want to merge pots and use the 75k to fund tax free cash withdrawing from both portions after the combining?

While I'm comfortable investing I'd take the 11%. In part because reliable studies of the effect of variation in investment performance have shown that guaranteed income purchased at a reasonable price like that increases the safe withdrawal rate from the rest of the portfolio. The problematic cases are either high inflation or sustained low returns. Hard for you to deal with 15% inflation even if you can beat lower sustained returns. Though a level(?) 11% would be ravaged in that situation it still helps.

PeacefulWaters

Rather overexposed to the FTSE I'd say.

Amolad

But maybe you're thinking of the tax free cash from the other pot and want to merge pots and use the 75k to fund tax free cash withdrawing from both portions after the combining?

That's right ... the £75K would produce £18,750 cash ... I would still need to raise the best part of £60K from the SIPP to fund the SIPP tax free element which is over £125K


I would agree with taking the 11% GAR if it was a joint-life annuity (with the wife) but feel I/we would be penalised too heavily for dying too soon!


The 11% drawdown was a bit "tongue in cheek" (though good to have the option under the new pension regulations - at least some new regulations have helped me) and in honesty I don't need to take out 11% p.a. I do however expect to grow the underlying investments by between 8-12% p.a. over a long period (allowing for income withdrawals).

Linton

Another vote to say you are seriously deluding yourself if you think you can sustainably drawdown 11% annually.

Some points....
1) Beating the FTSE100 with dividends re-invested every year has been easy for the past 5 years - just hold a world tracker which would have done that and given you over 100% total return.
2) In some years you could drawdown 11% of your initial stake. However if you drawdown that in a bad year you could significantly cut into the base you need to provide future returns.
3) Dont judge anything on any period that includes 2016. This has been one of the best years for some time for UK based investors because of the fall in the £. It could easily be un-wound should the Brexiteers be proved right.
4) Dont judge anything on the period since the great crash. It has been an almost interrupted rise from a very serious fall.
5) Suggest you play with cfiresim. It's based on US data but it should give you a feeling for how drawdown works given the overall movements of the stock market and inflation over the past 100 years. Something else you could do is to model various possibilities with a spreadsheet.

jamesd

Amolad wrote: »

I would agree with taking the 11% GAR if it was a joint-life annuity (with the wife) but feel I/we would be penalised too heavily for dying too soon!

You're missing a trick there. Check the price of term life insurance. It tends to be dirt cheap and a good way of spending a bit of the 11% that can't be made joint. A few types to consider:

1. Level term insurance. Pays out a fixed amount if you die within the term.
2. Decreasing term insurance. Payout decreases depending on how far you are from the start. Often used to cover future mortgage payments but you could use it to pay out more for your wife if you die early and less if later so you get closer to dual life value for money if you die early.
3. Family income benefit. Pays the specified income from death until the end of the term. You could use this to pay the cost of your wife deferring her state pension for say ten years to top up her income for the rest of her life if you die early.

Amolad wrote: »

The 11% drawdown was a bit "tongue in cheek"

A bit but if you were to use the Guyton and Klinger rules with Guyton's sequence of return risk reduction you might find that a safe withdrawal rate in the 6-7% range has an acceptable failure rate, without skipping annual inflation increases very often. More modern rules like those considerably beat the now outdated 4% rule.