GAR or lump sum

Corbiac

Hi, I’m 65 in October and have a with profits personal pension with Aviva.  I started this pension in 1986 with NM of Australasia and have kept up the premiums through all the new companies since, ending now with Aviva.  There is a 9.35% gar and I would like your thoughts on whether to take this or take 25% lump sum and the gar on the remainder.  The fund has a current value of 55k and I am a 20% tax payer.  

jamesd

A 9.35% GAR is a good deal and taking a lump sum and less money with that GAR is unlikely to be a good move. Instead, take the GAR on it all and make new pension contributions if you want to accumulate a lump sum. Even if not working you can contribute 2880 net a year, grossed up to 3600 even if you don't pay any tax.

I'm assuming that your life expectancy is normal.

The GAR is probably for a level annuity, no inflation increases. Sometimes this can be substituted for one with inflation increases at a lower percentage rate and that's worth checking. If the rate with uncapped inflation increases is below 5.8% and you want inflation protected income then taking the tax free lump sum and deferring claiming your state pension will get you 5.8%.

Corbiac

Thanks for your reply.  I did a back of a fag packet calculation and came up with a similar result as long as I live long enough, which is always the biggest question.  I’ve never trusted or understood pensions to be honest but as I slow down with work my mind is being concentrated on future financials.