Help for newbie considering drawdown pension

Albermarle

As for taking 25% now, the idea would be to move the rest of the pot to a new investment platform where it could continue to grow and the fees are lower. There are three pensions in that pot, two of which are inactive (not paid into since the 1990s) and are bleeding money on fees without any meaningful growth.

As mentioned in several posts, you should normally only take the 25% tax free, if you have some use for the money.
If you do take it , or part of it, it would be better to do this once you have consolidated your pensions into one.
At the moment your pension pot is 'uncrystallised' . If you take the 25% then the remaining 75% is then' crystallised'
Generally it is easier to transfer uncrystallised pots than crystallised ones.
The two pensions you are not paying into are not 'inactive'. They will be invested and you are being charged for those investments.
Nearly all pension pots have gone down this year, by on average about 15%. However you should have seen good growth over the last few years.
Do you know what the fees actually are ?

Fretful

gm0 said:

@Fretful.  Your basic choice is learn enough to DIY or find a reputable IFA and get categorised and placed on an adviser introduced platform. Both roads should lead to similar places. One is more work for you.  One is a service you pay for.

With DIY.  After you have worked out what your in retirement investments are going to be - from a single multi-asset fund to something more complex. You then pick a reputable but lowish cost platform company - that gives enough investment choice for what you want.  Could be Vanguard (but limited fund choice).  Could be someone else - iWeb, Fidelity International (especially if ETFs are used).  What each one costs varies with what you do - how often you trade or add money, what you invest in, how big the pot is.  So picking the platform arguably comes *after* deciding what you are intending to do.

With advised - the platform and portfolio are recommended to you as an outcome of the advice and then implemented for you if you agree.  The investments and platform part will largely cost the same as DIY (sometimes a bit more, sometimes a bit less - this depends so much upon the comparison points chosen.  Massive overlap.  It won't be the cheapest but if you stick to IFAs not wealth management/FA it will likely be OK.  Then you pay the adviser for their setup work (one off fee) and ongoing managment and review (typically fee of  0.5%/pot value each year on top).  That adds up long term and so the effort avoided of DIY needs to be worth it or not worth it to you and your family

There is some negativity upthread. Pensionwise are fine viewed as an early step to help you get to grips with the language of pension freedoms options. To ask questions you have about your understanding from reading the provider packs you are sent or from web content.  If you compare them to full advice they fall way short.  But that's like complaining that a bicycle is not a train. 
They don't set out to give advice.  Not set up for that.  Not intended to crowd out paid for advice.  They don't do the regulated fact find.  They are just an attempt to plug a gap where

1) pensions freedoms are complex to understand

2) Formal advice is not (in practice) available to all comers at a sensible price - just to the higher net worth group. 

Goverment created the complexity.  Then created this service to explain it a bit for an hour on the phone and signpost you to investigate further yourself or to go and seek paid advice which they harp on about a lot.

Excellent, thank you! I was beginning to think I had come to the wrong place, or that I had misrepresented what help/advice I needed, but you have nailed it. I have to do something else right now, but would you mind if I follow up on this with you later?

zagfles

dunstonh said:

• "Why take it up front when you don't need it?  That just reduces what you can draw tax free over your lifetime.  Although with the fund being relatively small, it may not make that much difference." This is interesting to me. How does it reduce what I can draw tax free over my lifetime? I am not being negative here, just really want to understand how that works.

You have access to 25% of your uncrystallised fund at any time after 55.   That fund is invested and will continue to grow.    If you draw it all one day one, you have no further tax free cash available.     If you draw it in 10 years time and your fund has doubled, then the amount of tax free cash you can take out will double.

e.g. Lets say your draw rate is £500pm.  Each regular payment is made with 25% tax free and 75% taxable (£125 tax free and £375 taxable)   What is left in the fund is fully uncrystallised and continues to have 25% TFC available.    The fund may start at £160k but in 10 years time you may have £200k.   As you still have 25% on the whole amount available that is £50k..  You have also have £15k tax free over the 10 years.    If you had taken the full tax free cash up front, the figure would have been £40k

Or you could have invested that £40k taken upfront in a ISA, in the same investments as the pension, and then that £40k would have been worth £50k 10 years later - exactly the same. Of course there's the £20k ISA annual limit, but could use both spouses allowances or do it over 2 tax years.

This "you get more tax free cash if you take it later" is misleading, TBF. It makes virtually no difference in terms of returns. Even if you use up your ISA allowance there's CGT and dividend allowances which would mean on that sort of amount it'd be unlikely you'd be forced to pay tax on growth.

The more significant difference comes to stuff like inheritance and benefit eligibility, where eg ISA investments will count as part of the estate, and as capital for means tested benefits, whereas pensions are outside the estate and are usually ignored for means tested benefits when below state pension age. I don't think capital affects carer's allowance.

trickydicky14

Can I ask, do Pensionwise still only do phone appointments, no face to face?

xylophone

I have a meeting with Pension Wise lined up next week, and I hope they will look at the nitty-gritty of our occupational and state pensions. 

Pension Wise can offer guidance on Defined Contribution pensions.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

Pension Wise is a government service from MoneyHelper that offers free, impartial pensions guidance about your defined contribution pension options. 

Ii appears that you and your wife have Defined Benefit occupational pensions - with this type of pension, it is  important to check the Rules relating to the particular scheme in the active/deferred/ drawing benefit  (as appropriate) phase.

With regard to your state pensions, you both come under transitional rules.

You may find this of interest

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

bearing in mind that the actual amount of new state pension at inception was £155.65 and that the "triple lock" was suspended for this financial year.

https://www.dpf.org.uk/explorer/files/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf (produced by Royal London to coincide with the introduction of NSP) might also be of interest.

And https://www.gov.uk/government/publications/new-state-pension-if-youve-been-contracted-out-of-additional-state-pension/the-new-state-pension-transition-and-contracting-out-fact-sheet

Fretful

trickydicky14 said:

Can I ask, do Pensionwise still only do phone appointments, no face to face?

I booked on the website which only allows phone appointments. Don't know if you get the chance for F2F if you phone them to book an appointment though.

Fretful

zagfles said:

dunstonh said:

• "Why take it up front when you don't need it?  That just reduces what you can draw tax free over your lifetime.  Although with the fund being relatively small, it may not make that much difference." This is interesting to me. How does it reduce what I can draw tax free over my lifetime? I am not being negative here, just really want to understand how that works.

You have access to 25% of your uncrystallised fund at any time after 55.   That fund is invested and will continue to grow.    If you draw it all one day one, you have no further tax free cash available.     If you draw it in 10 years time and your fund has doubled, then the amount of tax free cash you can take out will double.

e.g. Lets say your draw rate is £500pm.  Each regular payment is made with 25% tax free and 75% taxable (£125 tax free and £375 taxable)   What is left in the fund is fully uncrystallised and continues to have 25% TFC available.    The fund may start at £160k but in 10 years time you may have £200k.   As you still have 25% on the whole amount available that is £50k..  You have also have £15k tax free over the 10 years.    If you had taken the full tax free cash up front, the figure would have been £40k

Or you could have invested that £40k taken upfront in a ISA, in the same investments as the pension, and then that £40k would have been worth £50k 10 years later - exactly the same. Of course there's the £20k ISA annual limit, but could use both spouses allowances or do it over 2 tax years.

This "you get more tax free cash if you take it later" is misleading, TBF. It makes virtually no difference in terms of returns. Even if you use up your ISA allowance there's CGT and dividend allowances which would mean on that sort of amount it'd be unlikely you'd be forced to pay tax on growth.

The more significant difference comes to stuff like inheritance and benefit eligibility, where eg ISA investments will count as part of the estate, and as capital for means tested benefits, whereas pensions are outside the estate and are usually ignored for means tested benefits when below state pension age. I don't think capital affects carer's allowance.

Thanks for that, my thinking was that we could put it in something flexible though maybe low return to help with house renovation projects as and when we get round to them, or even things that can save on day-to-day costs like a PV array and battery storage. Also may need it to help out daughter if she decides to do a masters. Too many possibilities to know exactly what to do with it, but that is exactly what I was wondering - why can't it grow some other way if we don't use it straight away.

Fretful

Albermarle said:

As for taking 25% now, the idea would be to move the rest of the pot to a new investment platform where it could continue to grow and the fees are lower. There are three pensions in that pot, two of which are inactive (not paid into since the 1990s) and are bleeding money on fees without any meaningful growth.

As mentioned in several posts, you should normally only take the 25% tax free, if you have some use for the money.
If you do take it , or part of it, it would be better to do this once you have consolidated your pensions into one.
At the moment your pension pot is 'uncrystallised' . If you take the 25% then the remaining 75% is then' crystallised'
Generally it is easier to transfer uncrystallised pots than crystallised ones.
The two pensions you are not paying into are not 'inactive'. They will be invested and you are being charged for those investments.
Nearly all pension pots have gone down this year, by on average about 15%. However you should have seen good growth over the last few years.
Do you know what the fees actually are ?

As mentioned above, there are plenty of things we might like to do to use it, just none of it necessarily essential just yet.

Re: fees, they are not given as a total amount in pounds, but they are given as percentages per fund in each pension, and they give the investment split per fund, so I could work it out if needed. They are all higher than what I see on DIY platforms, especially Vanguard. Interesting thing that I don't understand, I am sure you or someone here will know why - the fees I am currently charged for with profits funds tend to be a lot lower than the others.

Fretful

gm0 said:

@Fretful.  Your basic choice is learn enough to DIY or find a reputable IFA and get categorised and placed on an adviser introduced platform. Both roads should lead to similar places. One is more work for you.  One is a service you pay for.

With DIY.  After you have worked out what your in retirement investments are going to be - from a single multi-asset fund to something more complex. You then pick a reputable but lowish cost platform company - that gives enough investment choice for what you want.  Could be Vanguard (but limited fund choice).  Could be someone else - iWeb, Fidelity International (especially if ETFs are used).  What each one costs varies with what you do - how often you trade or add money, what you invest in, how big the pot is.  So picking the platform arguably comes *after* deciding what you are intending to do.

With advised - the platform and portfolio are recommended to you as an outcome of the advice and then implemented for you if you agree.  The investments and platform part will largely cost the same as DIY (sometimes a bit more, sometimes a bit less - this depends so much upon the comparison points chosen.  Massive overlap.  It won't be the cheapest but if you stick to IFAs not wealth management/FA it will likely be OK.  Then you pay the adviser for their setup work (one off fee) and ongoing managment and review (typically fee of  0.5%/pot value each year on top).  That adds up long term and so the effort avoided of DIY needs to be worth it or not worth it to you and your family

There is some negativity upthread. Pensionwise are fine viewed as an early step to help you get to grips with the language of pension freedoms options. To ask questions you have about your understanding from reading the provider packs you are sent or from web content.  If you compare them to full advice they fall way short.  But that's like complaining that a bicycle is not a train. 
They don't set out to give advice.  Not set up for that.  Not intended to crowd out paid for advice.  They don't do the regulated fact find.  They are just an attempt to plug a gap where

1) pensions freedoms are complex to understand

2) Formal advice is not (in practice) available to all comers at a sensible price - just to the higher net worth group. 

Goverment created the complexity.  Then created this service to explain it a bit for an hour on the phone and signpost you to investigate further yourself or to go and seek paid advice which they harp on about a lot.

Thanks again, hope it is OK to follow up some things you mentioned. I would say you could consider me capable of understanding, but currently ignorant of how these newer (and older!) financial products work.

So as I said in the original post, I am drawn to the idea of DIY, but probably wouldn't want to be managing the investments myself daily or maybe even weekly. I have always looked to put my pension investments in ethical and/or green funds where possible, and would like to continue that approach, even if it doesn't necessarily give the best returns.

Bearing that in mind, can you suggest a) where I can go to learn enough to competently run it myself on a DIY platform, and b) do you know if there are any DIY platforms that are better for offering green and ethical funds?

Albermarle

Fretful said:

Albermarle said:

As for taking 25% now, the idea would be to move the rest of the pot to a new investment platform where it could continue to grow and the fees are lower. There are three pensions in that pot, two of which are inactive (not paid into since the 1990s) and are bleeding money on fees without any meaningful growth.

As mentioned in several posts, you should normally only take the 25% tax free, if you have some use for the money.
If you do take it , or part of it, it would be better to do this once you have consolidated your pensions into one.
At the moment your pension pot is 'uncrystallised' . If you take the 25% then the remaining 75% is then' crystallised'
Generally it is easier to transfer uncrystallised pots than crystallised ones.
The two pensions you are not paying into are not 'inactive'. They will be invested and you are being charged for those investments.
Nearly all pension pots have gone down this year, by on average about 15%. However you should have seen good growth over the last few years.
Do you know what the fees actually are ?

As mentioned above, there are plenty of things we might like to do to use it, just none of it necessarily essential just yet.

Re: fees, they are not given as a total amount in pounds, but they are given as percentages per fund in each pension, and they give the investment split per fund, so I could work it out if needed. They are all higher than what I see on DIY platforms, especially Vanguard. Interesting thing that I don't understand, I am sure you or someone here will know why - the fees I am currently charged for with profits funds tend to be a lot lower than the others.

Normally with profits funds are more expensive at around 1 % , but it depends on what funds you compare them with of course.
Seems a little surprising that these pensions contain multiple funds, unless you have chosen to do it that way in the past. Most people with a workplace pension ( or ex workplace pension) just have one fund.

DIY platforms, like Vanguard, have a fund cost and a platform cost. You have to add them both together to get the true cost.
Probably ( can not be sure of course) your current pensions just have one all in charge.