Pension Drawdown AVC

MaFurstDug

Hi, have been watching the forum for items that relate to my situation and would appreciate your feedback on my plans based on the following info.

Was in an employers pension scheme through Standard Life for many years until the company closed in 2011 and I stopped making any contributions. I also have a Freestanding AVC, (originally with AXA and then taken over by Prudential).

The Standard Life pension fund is now at around £210,000 and is still invested.
The Prudential AVC finished in March 2018 on my 65th birthday and is £61,000, Prudential then moved this into a Cash Fund.

I now plan to transfer the Prudential AVC into the Standard Life pension and take the 25% tax free amount from the combined total - about £67,000 - after that convert the remainder to a drawdown option with Standard Life (invested in the same or a similar low risk fund). I would take £2,000 per year from this which with my state pension would keep me just under the basic tax level.

I am now 66, been unemployed since 2011 but now with my state pension of around £780 every 4 weeks.
My wife retired 3 years ago, she has an NHS monthly pension of £600 and has another 2 years to wait for her state pension at age 67.

Our other combined savings, ISAs, shares etc come to around £150,000.

I have no experience of investing in shares or SIPPs and am very cautious of risking what we have saved over the years.

Is this too simple a plan? Should I be doing something cleverer regarding tax? Is there an obvious mistake I have not seen?

Thanks in advance for your comments.

Albermarle

Your plan seems OK for tax . Just a couple of points :
you say :

I have no experience of investing in shares or SIPPs and am very cautious of risking what we have saved over the years.

Yet you have two pensions , with some awareness of the funds they are invested in . You also have Stocks and Shares ISA's? and shares . So probably you already understand more than a lot of people.

I now plan to transfer the Prudential AVC into the Standard Life pension and take the 25% tax free amount from the combined total - about £67,000 - after that convert the remainder to a drawdown option with Standard Life

You should be aware that pensions set up a few years ago will usually not support drawdown, so first thing is to phone Standard Life to check . If yours will not support drawdown you will have to start a new modern pension ( with Standard Life or someone else ) before you can action your plan.
Normally this is relatively easy nowadays , although you will have to choose the fund(s) you want your money invested in the pension. Quite probably if you stay with SL, you can maybe OK to use the same fund.

MaFurstDug

Hi, thanks for your reply.

Your comments were very welcome. It looks like I'm not doing anything untoward.

Although I said that the world of finance is not my area, I have tried to educate myself on the basics of pensions and investing.

When the AVC finished last year I tried to transfer it to the Standard Life but Prudential would not do this without the involvement of a Financial Advisor, which - I do understand - is required to protect against scams and frauds, but it seems unlikely that a transfer from one of the major financial companys in the country to another would be suspected as questionable. I did contact a Financial Advisor but it did not work out as I hoped.

As you suspected, the present Standard Life pension (Standard Life Managed 50/50 Pension Fund) does not support drawdown so would have to be closed and the funds reinvested in another plan.

I will have to check with SL, Pru and possibly a Financial Adviser on any fees that might be involved to complete my pension plans.

Thanks again for your insight.

wjr4

Do you have an Inheritance Tax liability? It is best to use cash savings rather than your pension as pensions are usually outside of your estate for Inheritance Tax purposes. Why are you not using the ISAs to fund your living?

Albermarle

When the AVC finished last year I tried to transfer it to the Standard Life but Prudential would not do this without the involvement of a Financial Advisor, which - I do understand - is required to protect against scams and frauds,

Normally a straightforward transfer of a DC pension pot does NOT need you to get financial advice .
However if the pension pot has some associated guaranteed benefits , that you would lose by transferring then it can be necessary to take advice from an IFA, before going ahead .
It's not really about out and out scams as such, but trying to protect people making big errors that are not in their best interest.
Depending on what the guaranteed benefits with the AVC are , the cost for IFA will vary and can be high in some cases. Do you know what ( if any ) benefits are associated with the AVC ? Could be something like a guaranteed annuity rate for example .

xylophone

Standard Life but Prudential would not do this without the involvement of a Financial Advisor,

Why is this? Are there safeguarded benefits valued at over £30,000?

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

MaFurstDug

Don't know why, will contact Prudential and ask if it is because of safeguarded benefits as the figure is over £30,000. Thanks for your warning.

MaFurstDug

Thanks for your comments. I don't know if the AVC has protected benefits, will check with Prudential to determine if this is the case. Didn't take this further last year as when I contacted the local firm that arranged the AVC many years ago (they were then a local insurance brokers) they politely said that they had changed their focus to business clients and did not now take on any new clients with a portfolio under £500,000.
If there are no guarantees or special arrangements linked to the AVC and especially as now it is in a Cash Account it seems that in this digital age that the effort involved to write a letter or an email or press a few keystrokes should be very simple and very cost effective - just like sending payments between bank accounts. I'm hoping that's all it takes.

MaFurstDug

Don't have enough assets to come under inheritance tax, don't have kids or close relatives depending on an inheritance. Since being made redundant have been using savings and Cash ISAs to supplement my wifes wages, and now our pensions to pay the bills each month. Although I could have taken my pension when I was made redundant it has been left intact to accumulate until now. I will take a minimal yearly drawdown and leave the remainder to hopefully grow over around the next 5 years, only using for unexpected emergencies (new roof on house, etc). Hope that makes sense?
Thanks for your concerns.

xylophone

You have mentioned that the SL plan does not support drawdown.

Would it not be simpler to choose providers that do and ask them to arrange a transfer in from SL and from the Pru?

Examples

https://www.thisismoney.co.uk/money/pensions/article-5937747/How-pick-best-cheapest-Sipp-build-pension-investments.html

My wife retired 3 years ago, she has an NHS monthly pension of £600 and has another 2 years to wait for her state pension at age 67.

Has your wife obtained a new state pension statement?

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

She was contracted out in the NHS scheme and it is very possible that her forecast is for an amount less than a full new state pension.

Does she wish to consider voluntary contributions?

https://www.royallondon.com/media/good-with-your-money-guides/topping-up-your-state-pension/

xylophone

Another thought.

What do you intend to do with the £67,000 PCLS?