PP advice for a relative - annuity or drawdown?

Beckyy

A relative is seeking some advice on their pension, having just retired aged 62. This is not my forte at all so really keen to hear the thoughts of others please. 

Pension 1 - They have taken the 25% lump sum of £60,000 and will receive approx. £800 a month in annuity. This has already been put in place.

Pension 2 - Pension pot is £170,000, they are looking to take the £42K (25%) lump sum leaving £128,000 they don't know whether to go for an annuity of approx. £600 a month or look at drawdown instead? Standard Life Flexible Retirement Plan.  Any advice please?

They are mortgage free, married (partner in receipt of state pension only), they have no other income and would likely be quite risk averse in terms of investment. 5 years until they receive full state pension.

dunstonh

Pension 2 - Pension pot is £170,000, they are looking to take the £42K (25%) lump sum leaving £128,000 they don't know whether to go for an annuity of approx. £600 a month or look at drawdown instead? Standard Life Flexible Retirement Plan.  Any advice please?

Why are they taking the 25% up front and not on drip? 

what flexible options would make drawdown better for them (if any)? (is it gap filling to state pension age or using up personal allowance or what)

What annuity rate can they get and what annuity type and options would suit their objectives?

Effectively, the solution they should use is the one that fits their objectives.  It sounds like spouse protection is needed.

xylophone

(partner in receipt of state pension only),

How old is the partner? Old or new state pension?

Beckyy

xylophone said:

(partner in receipt of state pension only),

How old is the partner? Old or new state pension?

They are 70, old state pension

xylophone

They are 70, old state pension

Is the partner receiving at least the full Basic BSP (currently £141.85 a week)?

Pension 1 - They have taken the 25% lump sum of £60,000 and will receive approx. £800 a month in annuity. This has already been put in place.

Is this a joint life index linked annuity?

Steve_666_

Taking another single life annuity further exposes the spouse to potential poverty should the pension owner pass early.

scobie

£800 a month annuity purchased for £180,000.  That’s £9600 a year or 5.3%.  That is a hell of an annuity return. Is that normal these days?  

Steve_666_

I thought that, but a quick troll of the net shows

Hope its ok to post a url
https:               //www.hl.co.uk/retirement/annuities/best-buy-rates

Albermarle

Beckyy said:

A relative is seeking some advice on their pension, having just retired aged 62. This is not my forte at all so really keen to hear the thoughts of others please. 

Pension 1 - They have taken the 25% lump sum of £60,000 and will receive approx. £800 a month in annuity. This has already been put in place.

Pension 2 - Pension pot is £170,000, they are looking to take the £42K (25%) lump sum leaving £128,000 they don't know whether to go for an annuity of approx. £600 a month or look at drawdown instead? Standard Life Flexible Retirement Plan.  Any advice please?

They are mortgage free, married (partner in receipt of state pension only), they have no other income and would likely be quite risk averse in terms of investment. 5 years until they receive full state pension.

What did they do with the £60K from Pension 1 ?

If it was not spent and is just sitting in a savings account , then why take another £42K from pension 2 in one go.

There are a number of drawdown options for Pension 2. For example

1) There is no need to actually take it on any specific date or year. Some people in fact never take them, if they do not need the income, and leave it as an inheritance.
2) Take the 25% tax free and leave the rest invested. You can start withdrawing the taxable part straightaway, or leave that invested until later.
3) Take just part of the 25% tax free ( so in stages) , possibly in conjunction with some of the taxable income.

A simple summary is do not take money out of a pension unless you need to. It is quite happy staying in the pension until it is actually needed.

dunstonh

£800 a month annuity purchased for £180,000.  That’s £9600 a year or 5.3%.  That is a hell of an annuity return. Is that normal these days?  

Starting to see annuity rates get above 6% level for those in their mid 60s.   Got a quote yesterday on level basis, spouse with 100% value protect at 5.9%. Without value protect it would be higher.

Albermarle

dunstonh said:

£800 a month annuity purchased for £180,000.  That’s £9600 a year or 5.3%.  That is a hell of an annuity return. Is that normal these days?  

Starting to see annuity rates get above 6% level for those in their mid 60s.   Got a quote yesterday on level basis, spouse with 100% value protect at 5.9%. Without value protect it would be higher.

It seems even a more all singing and dancing annuity with RPI indexing, 50% spouse, 5 year guarantee etc  are getting close to 3% . Do you think they will get better still?