Does giving up guaranteed income ever make sense?

sunnyjim1234

Hi,
Just looking for opinions on this idea.
Me 57, retired 2yrs Drawing down a SIPP/ISA
Full SP at age 67

Wife 47, non earner only 30 yrs NI contributions (will buy 5 more years)
My wife has very little in the way of pension savings, circa 45k.
I am looking at ways of exploiting her personal allowance in the future.
Option 1: I draw an extra £3600 p.a and pay the net £2880 into her pension where it gets grossed back up to £3600, therefore tax neutral, to be drawn down at some point after 55 within her personal allowance.
Option 2: I have a relatively modest personal pension plan held with The Prudential in their with profits fund.
It has a transfer value of £64k but comes with a guaranteed minimum pension of £4k p.a from age 65, albeit a single life pension, with no mention of indexing.
Would it be incredibly foolish to give up the guaranteed pension and transfer to a SIPP and draw that down at £2880 net p.a to fund my wife's pension? Slightly better than tax neutral due to the 25% tfls.

I would be very grateful for any input.

Thanks in anticipation.

Linton

From a quick calculation your two options seem to be worth much the same...
Either you take the annuity in which case you get £4K X 0.8=£3.2k in your pocket.
Or your wife gets £64K in her pension which could buy a fixed annuity of about £3.2K. Or it could provide perhaps a similar fixed amount if drawn down. This is assuming that she is not a tax payer .

bostonerimus

Yes,
If you have a very large CETV then it might be worth giving up guaranteed income. It also depends on personal circumstances. If you have two guaranteed income pensions then you might be able to live on one of them and take the CETV on the other one to give you some capital and more flexibility.

sunnyjim1234

Linton wrote: »

From a quick calculation your two options seem to be worth much the same...
Either you take the annuity in which case you get £4K X 0.8=£3.2k in your pocket.
Or your wife gets £64K in her pension which could buy a fixed annuity of about £3.2K. Or it could provide perhaps a similar fixed amount if drawn down. This is assuming that she is not a tax payer .

Thank you Linton, I was thinking along the lines of her being 10 yrs younger and the annuity not having any widow's benefit, so it would be beneficial to have it in her name.

sunnyjim1234

bostonerimus wrote: »

Yes,
If you have a very large CETV then it might be worth giving up guaranteed income. It also depends on personal circumstances. If you have two guaranteed income pensions then you might be able to live on one of them and take the CETV on the other one to give you some capital and more flexibility.

Thank you bostonerimus.
Sadly not a large CETV and no guaranteed income other than State Pension and this small annuity.
The reason I was considering effectively transferring the fund to my wife was so that she could utilise her personal allowance to draw the income tax free, and also that the income would continue should I predecease her (statistically likely)

Albermarle

It has a transfer value of £64k but comes with a guaranteed minimum pension of £4k p.a from age 65, albeit a single life pension, with no mention of indexing.

Normally it is not straightforward to just take the transfer value of a pension with guaranteed income benefits . If it was a fully fledged final salary scheme you would have to have an expensive session with a qualified IFA . Not sure what would be necessary in this case but probably worth asking the Pru first. Could be will scupper the whole plan......

Brynsam

Albermarle wrote: »

Normally it is not straightforward to just take the transfer value of a pension with guaranteed income benefits . If it was a fully fledged final salary scheme you would have to have an expensive session with a qualified IFA . Not sure what would be necessary in this case but probably worth asking the Pru first. Could be will scupper the whole plan......

Sounds as if the Pru plan has 'safeguarded benefits' so advice would be mandatory - and could cost thousands.

I think you might be in danger of over-complicating your life based on today's tax regime which will almost certainly have changed several times by the time your wife turns 55. You say the Pru policy 'makes no mention of indexing' - why not find out for certain what it offers?

xylophone

Guaranteed Annuity Rate is a safeguarded benefit.

See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/495377/pension-benefits-with-a-guarantee-factsheet-jan-2016.pdf


Section 48 of the Pension Schemes Act 2015 and regulations made under it require pension scheme members who have subsisting rights in respect of safeguarded benefits worth more than £30,000 under the scheme to take appropriate independent advice from an FCA authorised adviser before:
• converting safeguarded benefits into flexible benefits (or in the case of benefits which are both safeguarded and flexible, into different flexible benefits)
• using a transfer payment in respect of safeguarded benefits to acquire flexible benefits under another scheme
• being paid an “uncrystallised funds pension lump sum” (UFPLS) in respect of their safeguarded benefits.
The following do not constitute transfers or conversions to which the advice requirement applies:
• payment of a pension commencement lump sum in respect of safeguarded benefits (that is, taking one-off tax free cash at the same time as starting to receive a pension)
• purchase of an annuity from another provider, rather than taking up a GAR offered by the member’s existing provider.

Dazed_and_confused

Wife 47, non earner only 30 yrs NI contributions (will buy 5 more years)

The new 35 year criteria only applies to those who have been entirely under the new rule i.e. youngsters.

Has your wife actually checked her current State Pension entitlement on gov.uk?

She may need 5 years to get to £168.60 but it could be more, could be less.

Best to be certain of this.

xylophone

As above - has your wife obtained a state pension forecast?

https://www.gov.uk/check-state-pension

sunnyjim1234

xylophone wrote: »

Guaranteed Annuity Rate is a safeguarded benefit.

See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/495377/pension-benefits-with-a-guarantee-factsheet-jan-2016.pdf


Section 48 of the Pension Schemes Act 2015 and regulations made under it require pension scheme members who have subsisting rights in respect of safeguarded benefits worth more than £30,000 under the scheme to take appropriate independent advice from an FCA authorised adviser before:
• converting safeguarded benefits into flexible benefits (or in the case of benefits which are both safeguarded and flexible, into different flexible benefits)
• using a transfer payment in respect of safeguarded benefits to acquire flexible benefits under another scheme
• being paid an “uncrystallised funds pension lump sum” (UFPLS) in respect of their safeguarded benefits.
The following do not constitute transfers or conversions to which the advice requirement applies:
• payment of a pension commencement lump sum in respect of safeguarded benefits (that is, taking one-off tax free cash at the same time as starting to receive a pension)
• purchase of an annuity from another provider, rather than taking up a GAR offered by the member’s existing provider.

Thank you very much, I think that answers my question.