Contracted Out Pension Pot - What To Do?

staffsuk

After many years of ignoring my annual personal pension statements, I’ve been educating myself about SERPS, and my being contracted out back in 1990. I was contracted back in in 2005 when I became self employed.

The government’s state pension forecast shows I need to contribute three more full years in order to receive the maximum new state pension amount (£203.85 currently). I understand this forecast also takes into account the period I was contracted out, and any COPE implications.

My latest protected rights pot statement suggests I will be able to access the funds next year, on my 55th birthday. It shows a figure of 21k. I understand I can then draw 25% tax free. So I’m now wondering what to do with the remainder?

I could quite happily live on £203.85 / week now, it’s more than I earn some years. I’m reading so many conflicting opinions on annuities, and all of the other options available, it’s a minefield. Can anyone suggest an option for someone like me? I live a very frugal lifestyle, self-employed, have some savings, earn circa 9k / year.

Thanks!

dunstonh

The government’s state pension forecast shows I need to contribute three more full years in order to receive the maximum new state pension amount (£203.85 currently). I understand this forecast also takes into account the period I was contracted out, and any COPE implications.

Sounds like you could be a winner under the new method.

My latest protected rights pot statement suggests I will be able to access the funds next year, on my 55th birthday. It shows a figure of 21k. I understand I can then draw 25% tax free. So I’m now wondering what to do with the remainder?

"former" protected rights.    Protected rights were reclassified as non-protected rights but some providers couldn't combine unless you transferred out. So, the rephrased the protected rights segment as former protected rights.

Just because you can take it at 55 doesnt mean you should.

 I’m reading so many conflicting opinions on annuities, and all of the other options available, it’s a minefield.

There shouldn't be any conflicting opinions on annuities unless biases are impacting the articles you are reading.    Its all a matter of suitability for your objectives.     Some will be suitable for drawdown, some annuity.    There is no one-size-fits-all option that is best.

Can anyone suggest an option for someone like me? I live a very frugal lifestyle, self-employed, have some savings, earn circa 9k / year.

If you don't need the money at this time, then don't take it out of the pension wrapper unnecessarily.   

Albermarle

For a slightly less frugal retirement you could consider adding to this pension whilst you are still working and gaining tax relief.
Although it was originally funded via NI payments as you were contracted out of SERPS, it is quite possible it is just a standard personal pension, that you can add to personally ( That is what I did at one point). You would need to check with the provider first though.

staffsuk

Thanks for the replies. I've booked an appointment with Pension Wise, so hopefully I will become better informed of the choices.
I understand one of the options beyond drawing the initial 25% tax free, would be to draw further lump sums in any one tax year, that would also be tax free should they combine with my self employed income to fall under the PA threshold (£12,570 currently).
I've also been reading some pretty dreadful reviews of these pension providers, I mean really awful. My personal pension is currently with Phoenix Life, who also have terrible reviews. Are there any providers who are generally well regarded?
Thanks again

dunstonh

I've also been reading some pretty dreadful reviews of these pension providers, I mean really awful. My personal pension is currently with Phoenix Life, who also have terrible reviews. 

Ignore reviews.   Phoenix buy dead or unwanted insurance companies.    Often the service at those dead or unwanted insurers is awful to begin with.   Phoenix then look to move them onto their own systems (which is usually an updated version of the old Pearl Assurance software).   However, that can take some years.

Once Phoenix have you on their software, the service they provide is perfectly fine and usually better than the legacy company.

Bad reviews tend to be posted by clueless people.   For example, most Phoenix pensions don't support any of the pension freedom options except single lump UFPLS.  That is to be expected and the same with most insurers with the legacy products.  So, people then post whinges on review sites because their 20-50 year old pension cannot do something that was only recently introduced to the mainstream.   Its a bit like owning a 30 year old TV and then complaining that it doesnt do ULTRA HD widescreen.    Ignore the reviews.

Are there any providers who are generally well regarded?

yes.

Albermarle

I've also been reading some pretty dreadful reviews of these pension providers, I mean really awful. My personal pension is currently with Phoenix Life, who also have terrible reviews. Are there any providers who are generally well regarded?

As explained above Phoenix take over old pension companies books. These come with a lot of legacy issues, like old software.

It might be better just to transfer the pension out to a modern more user friendly platform. It is normally easy to do that.

staffsuk

Albermarle said:

It might be better just to transfer the pension out to a modern more user friendly platform. It is normally easy to do that.

Thanks - could you make any recommendations?

dunstonh

staffsuk said:

Albermarle said:

It might be better just to transfer the pension out to a modern more user friendly platform. It is normally easy to do that.

Thanks - could you make any recommendations?

Without knowing what functionality you are looking for in retirement, its difficult to suggest a provider.   Before you pick provider and investments, you need to pick your method of drawdown. i.e. your withdrawal strategy.  Then you pick your investment strategy to match that.  Then you look at the providers that match what you are looking for.

staffsuk

Just following up on this, sorry 

Given my lifestyle, and my being happy and able to live on my circa £9k income (quite a bit less than my forecast state pension of £11,541.90), I'm wondering what the negatives are if I were to draw a single lump sum each tax year to take my income to the personal allowance threshold (£12,570), thereby not paying any tax on said lump sum, and paying said money into my ISA? Just to add, the annual management fee for the pension currently stands at £213.

Thanks 

MallyGirl

staffsuk said:

Just following up on this, sorry 

Given my lifestyle, and my being happy and able to live on my circa £9k income (quite a bit less than my forecast state pension of £11,541.90), I'm wondering what the negatives are if I were to draw a single lump sum each tax year to take my income to the personal allowance threshold (£12,570), thereby not paying any tax on said lump sum, and paying said money into my ISA? Just to add, the annual management fee for the pension currently stands at £213.

Thanks 

That sounds like a sensible move

staffsuk

Thanks @MallyGirl

Just to add - I checked my statements from 2017, and this is the value of my former protected rights pot each tax year to the nearest £25, less the annual management fee:

2017: £15,900

2018: £16,025

2019: £17,025

2020: £15,875

2021: £20,250

2022: £21,900

2023: £21,325

2024: £24,500