Pension plan

penpon

Can you good people cast your eyes over my plan please.
i am approaching my 59th birthday shortly and have just taken voluntary redundancy from my workplace which i was working there for 36 yrs .
my plan is to use my redundancy money for the next 12 months until i turn 60 i will still have half at least of my redundancy money left.
i have a defined benefit pension of 25 yrs service which is now closed, worth £303,900 in 2017.
also i have a standard life defined contribution pension worth currently £59,000.
i,m thinking of taking the both next year as annuity pensions, i will qualify for a slight enhancement due to high blood pressure, i think if said figures are correct at time of taking them next year i could generate £14000 between them, with £90000 cash lump sums. with my savings i would have around £200,000 cash in isa,s etc , if my sums are correct the annuities after tax would pay me £1141 per month then out of my cash savings i will pay myself around £300 to round my monthly income to £1500 more than adequate for me, then in 6 years time i will have my state pension on top , of which i already have full entitlement .is this sensible or not. or can anyone else think i could do it better ? cheers for reading.

LHW99

Have you a spouse / partner? If so, what is their position?

penpon

Hi LHW99, no mate i have no partner.

DairyQueen

penpon wrote: »

i have a defined benefit pension of 25 yrs service which is now closed, worth £303,900 in 2017.

A DB pension is valued in terms of an annual payment. If you receive an annual valuation for the 'pot' then this is a DC scheme.

penpon wrote: »

also i have a standard life defined contribution pension worth currently £59,000.

So, a total of around £363,000 in DCs depending on the current value of the £300k pot? Plus around £200k cash savings.

penpon wrote: »

i,m thinking of taking the both next year as annuity pensions, i will qualify for a slight enhancement due to high blood pressure, i think if said figures are correct at time of taking them next year i could generate £14000 between them, with £90000 cash lump sums.

Annuity rates are generally poor at the moment and buying an annuity at a relatively young age (60) is usually unwise (even with a blood pressure problem) as you won't receive good value. Had you considered two other options?:

a) Defer buying an annuity until age 70+. Rates are likely to have recovered in 10 years and you will receive better value, and a higher income, if you buy when older. In the interim you drawdown from your pension (or from your cash savings) or some-and-some. Whichever is most tax efficient.
b) Buy a short-term annuity to bridge the gap until SP age. You then have the option to buy a long-term annuity when the rates will be better (as you are older) and may be better value as the base rate increases.

Option 1) would also be more tax efficient as you can drawdown up to your personal allowance without paying tax. If you forego the 25% PCLS on the whole amount of your DC then the first 25% of every drawdown payment will be tax free so you can drawdown up to £15,800 (your income requirement) this tax year and pay zero income tax. Then, when SP kicks-in, you reduce your drawdown to the difference between your SP and your personal allowance (plus the 25% tax-free amount).

It would be best to withdraw up to the max of your personal allowance from your pensions whilst you have no other income. Otherwise, you are wasting your tax free allowance. If you don't need all the money then simply save or invest it outside of the pension. It will then be available as tax-free income when you need it.

I also think you would benefit from a pension review with an Independent Financial Advisor (IFA). S/he will analyse your circumstances, aims and income requirements in great detail and suggest various options. It would be worth the cost as this is such an important decision.

tacpot12

Do the annuities you have chosen have some index linking to protect against inflation? If so, and you can receive over £1100 a month at the outset, then you are doing well and I would go with your plan.

penpon

Hi Dairy Queen the 303,900 was a CETV ,
thanks for the reply lot to think about.

penpon

Hi tacpot12
no i dont think they are inflation protected.
i was using the pensionwise calculator for the smaller pot.
cheers for the reply.

DairyQueen

So, you are considering transferring-out of a DB and then buying an annuity with the proceeds?

Problem number 1: even though you are single and have high blood pressure, it is highly unlikely that an IFA would recommend transfer. For most people, most of the time, this is not the best thing to do. Was the annuity quote you received a like-for-like comparison with the benefits offered by your DB (without the dependent's benefit)? For example, did it include inflation-linking?

Problem number 2 - you must pay for a specialist IFA's advice before you can transfer. This isn't cheap. If they don't recommend transferring (and they are very reluctant to do so for many reasons) then you still have the legal right to transfer but I would be interested to know whether any annuity provider would accept the transfer.

DB transfers are very risky for IFAs.

Could you tell us why you think that you would benefit from transferring from your DB?

msallen

penpon wrote: »

the 303,900 was a CETV

Cashing out a DB plan to buy an annuity is a strange path to take. What does your DB plan offer you as standard?

Marcon

msallen wrote: »

Cashing out a DB plan to buy an annuity is a strange path to take. What does your DB plan offer you as standard?

Agree - but with no partner/children, and the possibility of an enhanced annuity (albeit likely to be quite a small enhancement if high blood pressure is the only medical condition), it is worth exploring. NB: 'explore' does not mean 'do' !

penpon

Hello msallen
My DB scheme at normal retirement age will pay me £13040 with pension increases in line with scheme rules, or £62,600 lump sum and £9,400 , based on current rates 2017.