Annuity or drawdown

ramb

I am going to be 67 years old in March, currently drawing around £8,1k a year state pension.
I have two pension schemes and a very small sipp with Youinvest.
The one with Abbey life is now worth about £70.5k and the one with Euitable, around £67k.
I also have share ISA worth around £140k and a share portfolio of about £40k.
My wife is also retired and gets a state +council pension of about £17.5k per year.

Now I want to encash Abbey life pension of £70.5k. Take around £17.5k taxfree cash and and get a single. 10 year guaranteed annuity of around £2700(top qoute- Canada Life) a year from a pot of about £52.5k.
I worked out that it takes about 18.8 years to get this £52.5k back. Avery poor deal.
As I have sipp account, I thought of moving this sum into sipp account. Take out 17.5k taxfree cash and think about investing the rest. But the charges and constantly having to manage may be a income drawdown seems quite daunting. Maybe not now; but in a few years g time.
So my question --- is buying annuity the best option for me ? such a poor return.
Any advice /views appreciated. --- Ramb

zagfles

Have a chat with pensionwise for free guidance:

https://www.pensionwise.gov.uk

dunstonh

Now I want to encash Abbey life pension of £70.5k. Take around £17.5k taxfree cash and and get a single. 10 year guaranteed annuity of around £2700(top qoute- Canada Life) a year from a pot of about £52.5k.

Interesting choice. Can Life rarely come out best on comparison. Why them?
Also, why only a 10 year annuity and why encash the pension first and buy a purchase life annuity instead of buying a lifetime annuity or a fixed term annuity?

As I have sipp account, I thought of moving this sum into sipp account. Take out 17.5k taxfree cash and think about investing the rest. But the charges and constantly having to manage may be a income drawdown seems quite daunting. Maybe not now; but in a few years g time.

Charges for plans in drawdown are little different to the accumulation stage. So, that should not be a worry.

Do you need the 25% TFC now?

So my question --- is buying annuity the best option for me ? such a poor return.

Not they way you describe it but that probably isnt the best way.

jamesd

Why not defer your state pension instead? It'll be increased by 10.4% a year for each year you defer, inflation linked for life. A person who has claimed can still defer once. Inheritable by a spouse. Your wife can do the same.

From the look of it you would be able to draw a lot of the taxable portion of your pension tax free while deferring, a handy bonus.

You'd also be able to make £720 a year while deferring by paying in 2880 and taking out the 3600 it grows to with tax relief without any tax being due. Your wife probably wouldn't get quite as much from this since some would probably be taxable for her. You don't have to take the money out from the part newly paid in, it's just the tax free withdrawing you can do from any pot within your personal allowance.

jamesd

Does either of the pensions have a guaranteed annuity rate? Unlikely if you started in 2000 or later.

Linton

ramb wrote: »

Now I want to encash Abbey life pension of £70.5k. Take around £17.5k taxfree cash and and get a single. 10 year guaranteed annuity of around £2700(top qoute- Canada Life) a year from a pot of about £52.5k.
I worked out that it takes about 18.8 years to get this £52.5k back. Avery poor deal.

Since you reached State Pension Age before April 2016 you would benefit greatly from defering your State Pension now. If you then simply used the £52.5K to take say £11.7K/year for 4.5 years your State Pension would be increased by about 47% giving a total of £11.9K at current prices. This is equivalent to an index linked annuity of £3.8K - a much better deal than buying a £2.7K fixed rate annuity now.

Linton

jamesd wrote: »

Why not defer your state pension instead? It'll be increased by 5.8% a year for each year you defer, inflation linked for life. A person who has claimed can still defer once.

If your wife reached her state pension age before 6 April 2016 she would get an even better deal. 10.4% and inheritable by you if she dies first.

From the look of it you would be able to draw a lot of the taxable portion of your pension tax free while deferring, a handy bonus.

You'd also be able to make £720 a year while deferring by paying in 2880 and taking out the 3600 it grows to with tax relief without any tax being due. Your wife probably wouldn't get quite as much from this since some would probably be taxable for her. You don't have to take the money out from the part newly paid in, it's just the tax free withdrawing you can do from any pot within your personal allowance.

10.4%!!! The OP is 67 in March.

jamesd

Thanks, yes, I was correcting while you were writing.

10.4% increase, inheritable and taxable money to be taken out of other pensions tax free. An excellent combination!

ramb

No, neither have guranteed annuity rate.
I meant 10 year guaranteed life annuity,
Canada life comes out as top qoute on Compare annuities - Money Advice Service website.
Yes, I need the TFC now to do some work on the house, together with other savings.

jamesd

So far as charges go, Hargreaves Lansdown has no explicit charges for drawdown at all, unlike Youinvest. So cheaper for say five years of state pension deferring with taxable but untaxed income being taken as fast as possible tax free while doing it.

MAS can probably be beaten but it won't really matter because there's no chance of you getting a standard annuity that can match drawdown funding state pension deferral. You'd have to be in your 80s or with reduced life expectancy from explicit illness or factors like smoking, diabetes or more minor things to beat it.

ramb

Is that mean I should stop taking state pension for 5 years and take a drawdown by utting both pots in sipp (After taking out TFC). The drawdown should finish in 5 years?