Pension Pot - How to withdraw full cash amount

Emmroyd

My brother is 62 and following a period out of work has decided he would like to cash in a private pension. He has been looking in to this since March and has spoken to pensionwise and tried to seek finically advise from 2 companies recommended one of which said they would deal with him as it was less than £100k. So he ended up seeing a Financial advisor through Pru who he has the pension with, their recommendation was to taken an annuity, whether I agree or not my brother is adamant he wants to cash in 100% to pay off the mortgage and see him through until he gets his state pension however because the pension pot is valued at more than £30k (it’s about £55k) he needs a form completing by a financial advisor before Pru will release the funds but because their advice is to take the annuity they won’t do this and are testing him as an insistent customer, he seems to he going round in circles with no way of feint able to get access to his money..anyone else had similar problems or got any advice? Thanks

bostonerimus

Taking the pension in one cash lump sum is not a good idea as your brother will get a big tax bill. Paying off a mortgage can see attractive, but if it is at a low interest rate it might not be a good idea because the money you use to pay it off might earn more return if invested. Also annuities are very bad value for money right now....except for the sales person who always makes money on them.

So to summarize your brother and the financial advisers are both coming up with bad financial plans.

Marcon

Answering the question OP actually asked...the legal requirement is to demonstrate that he has received financial advice from someone authorised to give such advice on a possible transfer, NOT that he has followed the advice. TPAS has met this many times before. Suggests he contacts them: https://www.pensionsadvisoryservice.org.uk

Their assistance is free, impartial and properly informed.

xylophone

Is this a Pru pension policy with a Guaranteed Annuity Rate?

See

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

Has he taken appropriate advice as set out in the above link?



The obligation is to obtain the advice, not necessarily to follow it.

If he were to take the whole fund as a lump sum, 25% would be tax free with the balance taxed as income in the year of receipt.

jamesd

Unless his life expectancy is poor it'll almost always be better to defer claiming the state pension than to buy an annuity at his age. Be very cautious if annuities are being pitched without that being mentioned.

Standard Life was just fined £30 million for annuity mis-selling: they paid bonuses up to and above 100% of salary to cause their employees to mis-sell just their own products.

It's not necessarily a bad idea to do what he wants with 55k, though some attention to tax is needed. If he was to take it all immediately 13.75k would be tax free and 41.25k taxable. Since he's 62 he has around 4 years to state pension age and 12.5k income tax personal allowance each year. So tax free 13.75k then 12.5k a year so he gets it all out with no tax cost will save him quite a bit of money.

But before we can say that's best we need to know why Pru are saying that advice is needed. The law does require showing proof that advice has been taken in cases where there are income guarantees in place. And Pru is saying that applies. Some of those guarantees can be very valuable so to give proper guidance we need to know what the guarantees are.

Emmroyd

Thanks. Not sure If deferring state pension was mentioned but will check. The GAR is about £5k per year which even he accepts is good but still not the route he wants to go down, this is for a couple Of reasons including his current work and health situation (back issues, not life threatening) and he has lost a couple friends/family of a similar age recently. The suggestion to spread the draw down over a couple of years is something I mentioned and probably something he will do for tax reasons. I still can’t work out why Pru are insistent on a financial advisor signing it off but think I’m going to suggest he completes the forms and sends evidence of financial advice with it and a declaration he still wishes to draw down and see how far this gets him!

MEM62

Emmroyd wrote: »

Thanks. Not sure If deferring state pension was mentioned but will check. The GAR is about £5k per year which even he accepts is good but still not the route he wants to go down, this is for a couple Of reasons including his current work and health situation (back issues, not life threatening) and he has lost a couple friends/family of a similar age recently. The suggestion to spread the draw down over a couple of years is something I mentioned and probably something he will do for tax reasons. I still can’t work out why Pru are insistent on a financial advisor signing it off but think I’m going to suggest he completes the forms and sends evidence of financial advice with it and a declaration he still wishes to draw down and see how far this gets him!

The point of compelling individuals to take financial advice is to protect them from their own poor decisions - and your brothers case is a classic example of where he will be saved from his own folly.

Cashing in your pension to pay off the mortgage a live off until SP kicks in is not in his best interests. The fact that he may see that differently is irrelevant. The tax position alone makes this unwise.

I would also note that, unless he has a particularly short life expectancy, an annuity is not the way to go either - unless the GAR is particularly good. But then the adviser from the Pru will only offer limited options which is why your brother needs to see an IFA not an FA.

Dox

Emmroyd wrote: »

I still can’t work out why Pru are insistent on a financial advisor signing it off but think I’m going to suggest he completes the forms and sends evidence of financial advice with it and a declaration he still wishes to draw down and see how far this gets him!

Because the law says they have to where (as in this case) a DC plan has safeguarded benefits i.e. the GAR.

SonOf

Not sure If deferring state pension was mentioned but will check.

Almost certainly not if it is a Pru rep. That is not a criticism of them but they are sales reps. They are there to sell their own product within the rules. They are also a limited advice service covering just a small range.

I still can’t work out why Pru are insistent on a financial advisor signing it off but think I’m going to suggest he completes the forms and sends evidence of financial advice with it and a declaration he still wishes to draw down and see how far this gets him!

because there is a safeguarded benefit and the value is over £30k. The rules require it.

The GAR is about £5k per year which even he accepts is good but still not the route he wants to go down, this is for a couple Of reasons including his current work and health situation (back issues, not life threatening) and he has lost a couple friends/family of a similar age recently.

So, he is being rather irrational in his decision making. Nothing you have said suggests that what he wants to do is sensible and rational. Whilst a firm can classify an individual as an insistent client and transact on the case, there has just recently again been an upheld complaint where a firm had an insistent client but the FOS ruled that as the adviser knew it was the wrong thing to do they should not have transacted it. This has been a long conflict in the FCA position that they say on the one hand there are insistent client rules, that if followed, advisers should be ok. But on the other hand they say advisers should not carry out instructions that they know to be wrong.

xylophone

I still can’t work out why Pru are insistent on a financial advisor signing it off

The policy has a Guaranteed Annuity Rate?

Read link in my post above.

GunJack

xylophone wrote: »

The policy has a Guaranteed Annuity Rate?

Read link in my post above.

From the earlier posts, it would appear to be around 10%-ish (£50k pot, £5k pa annuity). Not to be sniffed at...