Private Pension Advice

JanVenus

I've been paying into a private pension for 23 years, I always assumed that it was the sensible thing, but I've not been able to work since March due to COVID19 (Mobile Beauty Therapy) and my savings are gone having to pay it each month with nothing else coming into my bank account. I called my provider to ask if I can suspend my payments for 6 months but they said they can only give me a 3 month suspension by changing me to a premium plan which will increase my monthly payments when the 3 months is up.
Fortunately my phone lost signal before I could agree to anything (I have anxiety and don't perform well under pressure) and I spoke to my Husband and really had a good look at my latest pension statement.
I'm not getting a guaranteed lump sum upon retirement and my policy only gives me £2000 a year after I retire at 65   
I calculated that I've put almost £12k into that pension over the years but it looks like I would have been better just putting it into a savings account. I can't afford to increase my premiums - not with only a 3 month break and no idea when I'll be able to earn again - should I cash out and look for a better option?

cloud_dog

Can you confirm who your pension plan is with and what type of pension plan it is?

AlanP_2

If you have only paid £12,000 in and they are forecasting you can take £2,000 a year from Age 65 that is a fantastic return to be honest, so good in fact it doesn't sound accurate. Think about it, you would get £2k a year until you die (so say 25 years from Age 65) so £50,000 and you have paid in £12,000.

A more realistic withdrawal from Age 65 is around 3.5% of the pot value each year. What is the current value?

Who is the pension with as most Personal Pensions / SIPPs are fully flexible about the amount paid in?

If you have had it 23 years it may well be an outdated underlying system / IT issue that is forcing a restriction, or there my be something in the Ts & Cs you agreed to 23 years ago.

Moving it to a modern, flexible pension with the same or a different provider may be your best option but difficult to say without more information. 

dunstonh

 I called my provider to ask if I can suspend my payments for 6 months but they said they can only give me a 3 month suspension by changing me to a premium plan which will increase my monthly payments when the 3 months is up.

I suspect terminology and/or age of the pension is an issue here.

Modern pensions can stop, start, go up, go down willy nilly.   Older pensions would have payment holidays but you would have to make up the back payments to retain the benefits.    Otherwise they would move into a paid up state and its not possible to restart many plans that are made paid up.

I calculated that I've put almost £12k into that pension over the years but it looks like I would have been better just putting it into a savings account

If that is your assumption then it means you are misreading or misunderstanding something.

should I cash out and look for a better option?

Nobody can answer that question without knowing the details of the pension you have.   It sounds like it could be an old fashioned one and a modern option may be better.  However, some old fashioned plans have valuable guarantees or terms that make them little gems.   Or it could be a terminology issue.   Some providers (particular the insurers on older plans) will offer payment holidays and say you need to make up the difference when you restart but will also have the option to not make up the difference (which would not be classed as a payment holiday).

£12,000 contributions to get £2000 a year for life sounds much better than a savings account.   However, what you describe doesn't sound quite right either.   So, I suspect there is some detail missing or misunderstood.

The term "private pension" refers to any pension that is not state or company.   So, that leaves about 15 different types of pension being possible (although only around 5 are likely).   So, what type of pension is it and how old is it?

JanVenus

dunstonh said:

The term "private pension" refers to any pension that is not state or company.   So, that leaves about 15 different types of pension being possible (although only around 5 are likely).   So, what type of pension is it and how old is it?

I've looked through the full statement and it just says 'Personal Pension Policy', I've been paying into it for 23 years but the company I took it out with doesn't exist anymore and it's been transferred to another insurance society. I'm worried about the fact that my guaranteed cash sum upon retirement has disappeared from my statement, I'm not the most savvy person when it comes to investments. I can't afford to pay my current monthly premium and I certainly can't afford for that premium to increase when I have no idea if I'll be earning again in 3 months.

JanVenus

cloud_dog said:

Can you confirm who your pension plan is with and what type of pension plan it is?

The statement just says 'Personal Pension Policy' and it's with Royal London (the policy was opened with Co-operative Insurance society in 1996)

Albermarle

Although the details are still not clear , I think you need to talk to the provider ( who is it?) and explain your difficult situation .
Probably one thing you are not quite aware of is that to generate a pension income of £2000 pa , needs a rather large pot of money , probably a lot more than you imagine . Somewhere around £50K, depending on the terms and conditions .

dunstonh

JanVenus said:

cloud_dog said:

Can you confirm who your pension plan is with and what type of pension plan it is?

The statement just says 'Personal Pension Policy' and it's with Royal London (the policy was opened with Co-operative Insurance society in 1996)

This makes it an old fashioned plan.  Obsolete by modern standards.  hence it lacks the modern payment flexibility that you are looking for.  However, CIS were still offering plans with guaranteed annuity rates in 1996.  So, that could be a valuable benefit.

It also explains the terminology you are using.

 I'm worried about the fact that my guaranteed cash sum upon retirement has disappeared from my statement,

All personal pensions have 25% tax free cash available on them.   Statement projections and figures just show one of the ways you can take benefits. And they use artificial figures in their assumptions which are likely to be different from reality. They are pessimistic rather than optimistic. i.e. they tend to understate the likely outcome.   

If you fail to reinstate the premiums and make up the back payments and there is a guaranteed annuity rate, then usually the plan becomes paid up and you cannot restart it.   This wont prevent you starting a modern plan when you are able to restart.  It just means you are not adding to that old plan any more and you will have two pensions.   

JanVenus

@dunstonh
Yes, I have GAR. So due to the benefits I should keep it as is? Time to polish up my feet and start an OnlyFans account