What to do with a 'maturing' pension pot..?

Charlton_King

Sorry for the possibly naive question. I've not been paying much attention recently to the world of private pensions and need to be brought up to speed with current thinking.

I'm aware that HMG has introduced more options over recent years but am somewhat dim on what they are and their implications.

How goes the general consensus at the moment, if there is one? Are most people taking their pots to other providers, just taking out the cash and putting it on deposit? Buying a BTL? Is there an observable trend? I have no idea!

Any thoughts most welcome.

FatherAbraham

Charlton_King wrote: »

Sorry for the possibly naive question. I've not been paying much attention recently to the world of private pensions and need to be brought up to speed with current thinking.

I'm aware that HMG has introduced more options over recent years but am somewhat dim on what they are and their implications.

How goes the general consensus at the moment, if there is one? Are most people taking their pots to other providers, just taking out the cash and putting it on deposit? Buying a BTL? Is there an observable trend? I have no idea!

Any thoughts most welcome.

Perhaps we can help you if you summarize what you're trying to achieve in terms of income, and when, and what your current pension provision looks like?

It doesn't really matter what other people are doing, since their circumstances are probably different.

atush

People who draw out a whole pot (and pay a lot of tax on it) are idiots- but some do.

Some people buy an income for life (ie an annuity) but that is much less popular now.

Some people take the 25% TFLS and then draw down the rest of the pension (taxed as income) when they need it.

Some people drawdown their pensions a tranche at a time-getting 25% of each payment tax free, and the ohr 75% taxed as income.

dunstonh

How goes the general consensus at the moment, if there is one?

Most of the options changed in 2015 already existed since the early 2000s. They were just made more flexible. The wide range of methods means there is no one best option. You go with what is best for you.

Are most people taking their pots to other providers

Statistically, most advised consumers move their pensions but most DIY consumers are not. The FCA is actually very concerned at the low level of movement by DIY consumers (it published a report last month that highlighted a number of concerns on the DIY side).

So, its probably not best to go with the majority if you plan to DIY.

just taking out the cash and putting it on deposit?

That would generally be awful without any justification.

Buying a BTL?

Post credit crunch and revised taxation?

You say your pension is maturing. That would indicate you are coming up to age 75 (although even that nowadays doesn't mean it really needs to mature). What are your objectives?

Or is your pension actually maturing? Is it perhaps just currently set to a statement projection age (55,60,65 or whatever)?

Charlton_King

dunstonh wrote: »

Most of the options changed in 2015 already existed since the early 2000s. They were just made more flexible. The wide range of methods means there is no one best option. You go with what is best for you.



Statistically, most advised consumers move their pensions but most DIY consumers are not. The FCA is actually very concerned at the low level of movement by DIY consumers (it published a report last month that highlighted a number of concerns on the DIY side).

So, its probably not best to go with the majority if you plan to DIY.


That would generally be awful without any justification.


Post credit crunch and revised taxation?

You say your pension is maturing. That would indicate you are coming up to age 75 (although even that nowadays doesn't mean it really needs to mature). What are your objectives?

Or is your pension actually maturing? Is it perhaps just currently set to a statement projection age (55,60,65 or whatever)?

Indeed I'm talking of the latter - my post relates to my wife's private pension with Standard Life which has done eyewateringly well, I'm pleased to say, over the last few years as she approaches 65 in 2019, the year we'd always fixed for her retirement.

She's paying in the maximum under current tax rules and there's no reason why she couldn't go on, if allowed. There comes a time however when we'd like to achieve the 'double whammy' of ceasing paying in and getting something out... and I suppose this has to be sometime in the next year to three years, say.

What I'm trying to get a feel for is exactly what tactic to employ to maximise the return on the effort she's made. We're looking for an ongoing income stream. With rental returns still coming in at 5%+ I'm tempted to go for property bought outright.

dunstonh

There is a general rule of thumb. You should leave the money in the pension unless there is a justified reason for taking it out.

With rental returns still coming in at 5%+ I'm tempted to go for property bought outright.

But the actual yield needed would need to be higher than that if you considered all the tax that would need to be paid vs leaving it tax free invested.

Charlton_King

dunstonh wrote: »

There is a general rule of thumb. You should leave the money in the pension unless there is a justified reason for taking it out.



But the actual yield needed would need to be higher than that if you considered all the tax that would need to be paid vs leaving it tax free invested.

My highlights. I was actually talking net after tax and average costs.

As a landlord of some years standing I can say that, in my area, 5% would be a conservative estimate. I am not even including any capital again from rising property prices. Yes I know these are currently pretty flat but the demographics/property balance in this country seems set to produce only one outcome...

Besides, unless I have misunderstood totally, 'leaving the money in the pension' would actually produce no income stream but merely look good on paper as a surrender value.

Drp8713

You would pay tax on withdrawing the pension (above the 25% tax free) to then pay stamp duty, solicitors fees, agents fees, maintainance fees, insurance fees, to then pay tax on the rental income, and capital gains tax on any value when you sell and IHT if you pop your cloggs.

Historically, the stock market returns beat property, any dividends and growth within the pension are tax free, which means you can make tax efficient withdrawls and pass it on IHT free depending on the age at death and beneficiary's rate of tax.

Charlton_King

Is the 25% tax break a once-off matter or is it applicable in successive tax years, such that you can gradually drain the pension, tax free?

Drp8713

You can take 25% tax free of each withdrawl, rather than the whole pot in one go, so you could for example take £15800 over the course of a year of which £3950 would be the 25% tax free and £11850 would be taxable, however if you have no other income in that year you could use your £11850 personal tax allowance and take the lot tax free.

Then repeat the next year

dunstonh

My highlights. I was actually talking net after tax and average costs.

And including the tax on withdrawing the pension as a lump sum? Losing a quarter to almost half the value of the pension in tax before you start.

Besides, unless I have misunderstood totally, 'leaving the money in the pension' would actually produce no income stream but merely look good on paper as a surrender value.

taking only what is needed, when it is needed

Value is value whether it is in a pension, ISA, bank account or property. You often have to look at the overall position and not one bit in isolation.

Is the 25% tax break a once-off matter or is it applicable in successive tax years, such that you can gradually drain the pension, tax free?

Depends on which method you use. If can be availble as a one off up front or it can be phased.