Annuity or SIPP/Flexi Drawdown

Confuciusone

Looking for a little help and critique ….My wife aged 59 has a Prudential with Profits PP + SERPS annuity, written to age 60, now penalty free at the time of asking, she is retiring this month.

Now intends taking her £93.5k pension fund and £23.3k 25% tax free, buy an annuity with the remaining £70k, having blood pressure and a few other minor health issues going down the enhanced option, assuming a possible 4 to 5% annuity rate….thought we made a decision.

After talking to the IFA, happy to peruse an enhanced annuity after taking 25% and receive a pension approx 4.5%, £262 monthly, £3150 per annum, level, single life with 10 year guarantee taking over 22 years (then aged 81 years) to get her fund back.

IFA also advised the option of taking 25% Lump Sum tax free 75% Flexi-Drawdown Fund, unfortunately IFA’s practice won’t handle Flexi-Drawdown Fund under £100k.

After earlier dissming Flexi-Drawdown, this option is now looking an attractive and better suited as my wife has no taxable income form 2017/18 £11.5k tax allowance. She could take 25% lump sum and up to £11.5k tax free every year, depleting the fund before reaching State Pension age, avoiding tax implications, or ad hoc amounts as and when required, upto or below her tax allowance, any monies left in the fund transferable on death, unlike buying an income for life annuity.

We have various savings and investments saved for our retirement income which have no tax implications, she feels living to age 80+ unlikely, (her parents died before reaching 70), also the possibility of losing half the fund after 10 year guarantee, we are happy to accept moderate ups and downs risks of the markets, her of pension and contributions of 30 years have been on the same roller coaster.

So our thinking....DIY option, is to take out a SIPP that can be converted to a Flexi-Drawdown fund.

Two questions really does our thinking stack up and any recommendations on trusted reputable SIPP / Flexi-Drawdown Fund providers.

Many thanks.

Linton

The thinking seems reasonable especially if the income is a relatively minor part of your total needs in retirement.

I think it is dangerous to work on the basis of early death from what you have said. Lifestyle changes eg reduction in smoking, and improved medical techniques have led to a greatly extended life expectancy compared with previous generations. Someone of your wife's age in average health is currently estimated to have a life expectancy of around 89 and about as likely to live until 99 as to die before 80. However a quote for an enhanced annuity compared with the standard rate may give you some guidance on that.

Any mainstream online brokers should be able to provide you with the drawdown facilities your want. Many are frequently mentioned on this forum. See here for a list with charges.

xylophone

Your wife might consider HL - excellent platform, and efficient service and charges reasonable on a modest SIPP.

Plenty of information for her to read - see

http://www.hl.co.uk/pensions/sipp/apply-now

Confuciusone

Many thanks Linton and xylophone, i will do some more reading up and make a decission.

Confuciusone

Thinking a HL SIPP is the way to go?

Transfer Prudential pot now £99K then additional payments and tax relief will make the fund 120k.

Finding the number funds to invest ininitially bewildering, given me an headache.

Would the HL's build a portfolio tool, medium risk, listing 7 funds be a sensible start for our initial fund selection.

xylophone

http://www.telegraph.co.uk/finance/personalfinance/investing/funds/12129737/Why-these-are-Britains-14-best-stock-market-income-funds.html
may be worth a read.

http://monevator.com/investment-trusts-for-deaccumulating-income-investors-2016-update/

Does she intend to take a £30,000 PCLS?

Don't forget that even if she has no relevant income, it is possible to continue to contribute £2880 per annum to the SIPP and receive tax relief of £720 - see http://forums.moneysavingexpert.com/showthread.php?t=5580163

Confuciusone

Thanks xylophone.....I will study those links.

Does she intend to take a £30,000 PCLS?.....Yes may be at some point, she has 5.5 years before her State Pension kick in.

If my newly gathered info is correct, uncrystallised monies in a SIPP can only be withdrawn ad hoc, 25% free of tax, 75% taxable if outside her tax allowance, would she have to convert fund to drawdown, monies then crystallised, to be able to take £30,000 tax free PCLS???

Thanks....will take advantage of the £2880/£720 contribution using her remaining tax allowance, after taking any SIPP/Flexi-drawdown monies, think I may start a SIP, I have £3k unused tax allowance for 5 years before the State Pension starts.

Trying to make the best decisions is really making my head hurt, whilst the fund holder is trying to work out how many cruises are in the pot...:j

jamesd

She can take a 25% tax free lump sum from it all if she likes. The rest would go into a crystallised money drawdown account from which all withdrawals are taxable income. She can take up to her personal allowance from that with no tax due, though it will be deducted and a refund claim needed the first time.

Or she could just take a 25% tax free lump sum from say £40,000 of it and end up with:

1. £10,000 tax free lump sum in her bank account.
2. £30,000 in her drawdown crystallised account.
3. £53,500 in her uncrystallised account.

Confuciusone

Thanks jamesd

I understand now, what options there are, it's the scary fund selection, finding that very difficult with HL listing 2500 to chose from:eek:?

kidmugsy

If she's going to withdraw it all before her State Pension starts then there's no need to invest in funds and so on. Keep it all, or mostly, in cash.

Maybe you could estimate how much capital will be left after the 5.5 years, including the allowance for the £2280 p.a. contributions, and invest that bit, keeping the balance in cash. That might be a decent compromise.

P.S. remember that she can generate quite a bit of interest tax-free with her lump sum by using it in high-interest current accounts and regular savers. That might help you balance getting tax-efficient income versus sailing the oceans. If all else fails remind her of the risks of piracy, vomiting/diarrhoea infections, etc.

P.S. has she checked how big a new-style State Pension she can expect? If it's less than the max it might be an excellent investment to top up by making extra NICs.

Confuciusone

Thanks for your suggestions Kidmugsy

Cash that's a thought, HL have no Fixed Rate Cash Offers at the moment only the variable 0.05%.

Still think she'd choose the sailing the oceans, despite the risks :rotfl:

Luckily she has just scrapped in with 2016/17 being her 35th qualifying year, after many years contracted out.