Taking a lump sum less than £10k

pimento

I had a letter from ReAssure telling me that I had a pension with them from a very old employer.

It says that if I retire at 60 (I'm currently 58) it will pay me £368 a year and that the current value of the the pension is £6326.16.

My question is, if (as they say I can) I take the whole lot as a lump sum is it better to take it now or wait until I'm 60? I'm a higher rate tax payer.

Will I pay tax on the lump sum?

dunstonh

It says that if I retire at 60 (I'm currently 58) it will pay me £368 a year and that the current value of the the pension is £6326.16.

That seems to be high for a standard projection. I wonder if you have a guaranteed annuity rate. And if so, is the guaranteed annuity rate they are quoting on indexation basis and joint? Or is it on level, single basis or another variant?

My question is, if (as they say I can) I take the whole lot as a lump sum is it better to take it now or wait until I'm 60? I'm a higher rate tax payer.

Clearly it not worth you aking it under small pots legislation as you are a higher rate taxpayer. No point paying 40% on the bulk of it.

If it has a Guaranteed annuity rate, then it may be worth keeping. Especially if you can get 5.8% at 58 and higher at 60-65.

LHW99

My question is, if (as they say I can) I take the whole lot as a lump sum is it better to take it now or wait until I'm 60? I'm a higher rate tax payer.

Will I pay tax on the lump sum?

If you take the whole amount as a lump sum, 25% is tax free and the rest taxed at your normal rate. May be worth waiting until you retire (/ move to part-time?) and drop into a lower tax rate.
Does it increase if you leave it after age 60?

pimento

dunstonh wrote: »

That seems to be high for a standard projection. I wonder if you have a guaranteed annuity rate. And if so, is the guaranteed annuity rate they are quoting on indexation basis and joint? Or is it on level, single basis or another variant?



Clearly it not worth you aking it under small pots legislation as you are a higher rate taxpayer. No point paying 40% on the bulk of it.

If it has a Guaranteed annuity rate, then it may be worth keeping. Especially if you can get 5.8% at 58 and higher at 60-65.

The letter says (and I'm paraphrasing)..

What could my pension be worth?
Annual income you could receive at age 60 using ReAssure's retirement offering with your guarantee = £368

We've assumed in the above that when you retire and use your guarantee, your income will be on the following basis:

Monthly in advance
A guarantee period of 5 years from when it starts
A portion of your income paid to dependents after you die
Increases by 3% a year.

It doesn't mention anything about age 65 or later.

pimento

LHW99 wrote: »

If you take the whole amount as a lump sum, 25% is tax free and the rest taxed at your normal rate. May be worth waiting until you retire (/ move to part-time?) and drop into a lower tax rate.
Does it increase if you leave it after age 60?

Can I take it over 4 years 25% at a time tax-free?

A £1 a day doesn't seem very much to me whereas I can have a stonkingly good holiday for £1500.

xylophone

The "guarantee" is a GAR and so a "safeguarded benefit"?

Even so, the value of the benefit is under £30,000?

You could transfer out to a SIPP, take the PCLS for your holiday and leave the balance to be drawn down when you are no longer a higher rate tax payer?

You mention (https://forums.moneysavingexpert.com/discussion/5900000/what-happens-if-i-retire-but-dont-take-my-pension)

the possibility of retiring now (age 58) and living on savings until your deferred DB kicks in at age 60.

If you leave the balance in the SIPP undrawn until the tax year 19-20, you could take the balance tax free within your personal allowance?

pimento

Yes. I'm waiting (still) for the figures form the trustees for all my possible permutations.

Favourite at the moment - depending on the figures - is stopping work October 2019 when I will be 59 but not drawing the pension until I'm 60. I'm sure I can live on baked beans for a year as I will get a severance payment of three months salary and we have some savings.

dunstonh

It doesn't mention anything about age 65 or later.

It wont do unless you have asked for a projection to 65. However, most GARs increase with age.

Monthly in advance
A guarantee period of 5 years from when it starts
A portion of your income paid to dependents after you die
Increases by 3% a year.

This is also one of the most expensive annuity options. Normal for pension projections to use the most expensive option as they aim to under project and over deliver nowadays. Most people do level basis on annuities. Especially smaller ones. So, the level annuity rate is almost certainly a fair bit higher than the indexed one.

Can I take it over 4 years 25% at a time tax-free?

No. You are a higher rate taxpayer. So, 75% of it will be taxed at 40% (at least) regardless of frequency. Plus, using UFPLS instead of small pots would reduce your annual allowance to just £4000. That could cripple your main retirement planning.

A £1 a day doesn't seem very much to me whereas I can have a stonkingly good holiday for £1500.

Who says you are getting £1 a day?
Your projection is to age 60 using a synthetic growth rate and a synthetic annuity rate that you would almost certainly not use.

What is the annuity rate on level basis at 60?
What is it at 65? (most increase the rate for every year you leave it)
Do you need spouse to be included?
What is the breakeven point on the appropriate annuity basis to the value?

pimento

dunstonh wrote: »

It wont do unless you have asked for a projection to 65. However, most GARs increase with age.



This is also one of the most expensive annuity options. Normal for pension projections to use the most expensive option as they aim to under project and over deliver nowadays. Most people do level basis on annuities. Especially smaller ones. So, the level annuity rate is almost certainly a fair bit higher than the indexed one.


No. You are a higher rate taxpayer. So, 75% of it will be taxed at 40% (at least) regardless of frequency. Plus, using UFPLS instead of small pots would reduce your annual allowance to just £4000. That could cripple your main retirement planning.



Who says you are getting £1 a day?
Your projection is to age 60 using a synthetic growth rate and a synthetic annuity rate that you would almost certainly not use.

What is the annuity rate on level basis at 60?
What is it at 65? (most increase the rate for every year you leave it)
Do you need spouse to be included?
What is the breakeven point on the appropriate annuity basis to the value?

I confess, I have no idea how to answer those questions. I think I'll be taking some independent advice when I get the figures from mt DB pension trustees. Is the moneyadviceservice.org site a good place to find one? I don't mind paying for advice.

dunstonh

pimento wrote: »

I confess, I have no idea how to answer those questions. I think I'll be taking some independent advice when I get the figures from mt DB pension trustees. Is the moneyadviceservice.org site a good place to find one? I don't mind paying for advice.

There is no one perfect directory of IFAs.

Moneyadvice service doesnt show adviser status (so could be an IFA or FA)

PFS find an adviser lists those who are qualified and are upto date on their professional standing requirements (however, it doesn't differentiate between FA and IFA. Its not a commercial directory though. So, advisers are not paying to be listed there)
https://www.thepfs.org/yourmoney/find-an-adviser/

Adviser book is a new one and they do verify IFA status. It costs nothing for a basic listing although some things the adviser firm does need to pay more for. It covers all firms but not many firms will have updated their profiles. I just did a search on mine and 3 out 10 of the nearest adviser firms were verified independent.
https://adviserbook.co.uk/

The old unbiased search engine went commercial a few years back and most IFA firms stopped paying towards it. So, they no longer appear unless you select the option to show non-paying firms. The non-paying firms will only have basic entries. Not what it used to be.

Google is starting to be quite useful for finding a local IFA.

pimento

It's an absolute minefield for someone like me who has a very limited understanding of pensions and investments.