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Done with work - new retirement journey

Hello all,

New to this forum, so hopefully after some opinions to help get me on the right track in my new retired life, so, a bit about me.

I'm female, married and recently finished work for good, just turned 62 and have former workplace pensions currently valued at about 462K, made up of a Standard Life 'with profits' plan, value around 151K and a Royal London plan, value 311K.

We own our own home, value around 800K no mortgage or debts.  We also own a property abroad value around 150K and have around 230K in savings, mainly P' bonds, cash ISA's and higher interest cash accounts, no equity based investments other than my pension.  Children all grown up and flown the nest.  We are neither frugal nor frivolous with our spending but aim to maintain pre-retirement levels of spending which I believe our pensions and savings will allow us to do.

My OH is retired and has a DB pension around 26K pa and can claim state pension in early 2025 when he's 66. He was 'contracted out' but has paid additional class 3 contributions so will qualify for the full new state pension so his is simple and sorted, but now we have to sort mine out, which are DC pensions.  I would get 50% of his pension if he pre-deceased me.

I'm not currently drawing on my pensions and will not do so for the rest of this tax year purely for tax reasons.  I will have no other income for the rest of this tax year so in order to supplement our household income temporarily we are drawing on savings to tide us over. Currently I have a tax code of K80X but from 2024/25 my tax affairs will be sorted and I should be at the standard PA of 12,570.

I can claim state pension in late 2028 so for the interim 4.5 years from April 24, whether I need it or not, I aim to utilize my pension to make full use of my personal tax allowance.

I don't intend to take my tax free lump sum up front as we don't really need it for any specific purpose so would rather leave it invested in the pension.  

Currently I am torn between starting drawdown, or taking out a 5 year fixed term annuity with a fixed income of £12,570 for 5 years.  I am not interested in taking out a lifetime annuity,  

If I take the drawdown route I may move my pensions from the current providers and amalgamate them into a SIPP, as for one thing I'm not overly happy with their performance and the second reason is I think the SL pension plan doesn't allow drawdown in its current form, but where do I move them to?!! 

I feel that my pension has not done so brilliantly lately as I believe it's based on 'lifestyling' investments which I gather have not done well.  I feel maybe I would be prepared to not be quite so cautious being that certainly I don't really need to rely on it for income, particularly post state pension age.

I’m also considering a fixed term annuity for 5 years.  I had a rough quote of a fixed income of £12,570 for 5 years and then a guaranteed maturity value back of 535K if I handed over my whole 462K pot.  At the moment this seems attractive to me as its a return of around 5.5% per year and 535K back to invest as I wish in 5 years without the worry of how my fund is performing and with no concern over stock markets or charges either.

I do intend to see an IFA sometime soon, but would love to hear any views or opinions from some of you on here before I do

Thanks.


«13

Comments

  • QrizB
    QrizB Posts: 15,189 Forumite
    10,000 Posts Third Anniversary Photogenic Name Dropper
    Just picking up on one point, I think you will have to take your 25% tax free if you plan to buy a 5-year annuity. So your £462k pot is really £115.5k TFLS plus £346.5k taxable and available for annuity purchase.
    What you do with the £115.5k is up to you; you might choose to invest some of it in a SSISA, give some to your husband for his SSISA, and the rest in a general investment account.
    Somebody will correct me if I've got this wrong.
    And is there a reason why your £230k is all in cash?
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  • Pat38493
    Pat38493 Posts: 3,122 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper Combo Breaker
    You will probably get a lot of differing opinions about Annuity vs drawdown - in the end it depends a lot on your attitude to risk and volatility and if you are planning to see an IFA, hopefully they would take you through those conversations.

    My personal view is that even with the more attractive prices now, annuities are still quite likely, but not certain, to leave you worse off in the long term - guarantees are expensive in the end.  However I may have a totally different outlook to many others on the boards.  Also this assumes that you take the trouble to make sure your investments are managed appropriate e.g. not using life styling unless it's appropriate for your case.

    One other immediate topic for this tax year - are you a higher rate taxpayer in the current tax year?  If so you might want to check if it makes sense to put some of your cash savings into a SIPP already - if you have just stopped work this year this could be your last chance to get valuable tax relief matching your earnings.  Even if you are basic rate taxpayer it might still be advantageous but you would have to do some simple calculations to figure it out.

  • QrizB said:
    Just picking up on one point, I think you will have to take your 25% tax free if you plan to buy a 5-year annuity. So your £462k pot is really £115.5k TFLS plus £346.5k taxable and available for annuity purchase.
    What you do with the £115.5k is up to you; you might choose to invest some of it in a SSISA, give some to your husband for his SSISA, and the rest in a general investment account.
    Somebody will correct me if I've got this wrong.
    And is there a reason why your £230k is all in cash?
    Hi thanks for your reply.  An advisor that I spoke to at Canada Life said I could put the full amount in... so unless he's given my duff info!

    Regarding the 230K, I guess we just haven't gone via the S&S route, 100K of it is in P' bonds
  • Pat38493
    Pat38493 Posts: 3,122 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper Combo Breaker
    edited 20 September 2023 at 10:23AM
    QrizB said:
    Just picking up on one point, I think you will have to take your 25% tax free if you plan to buy a 5-year annuity. So your £462k pot is really £115.5k TFLS plus £346.5k taxable and available for annuity purchase.
    What you do with the £115.5k is up to you; you might choose to invest some of it in a SSISA, give some to your husband for his SSISA, and the rest in a general investment account.
    Somebody will correct me if I've got this wrong.
    And is there a reason why your £230k is all in cash?
    Hi thanks for your reply.  An advisor that I spoke to at Canada Life said I could put the full amount in... so unless he's given my duff info!

    Regarding the 230K, I guess we just haven't gone via the S&S route, 100K of it is in P' bonds
    I think that legally you could put the full pension amount into an annuity, but whether this actually makes financial sense is another question because you are forgoing the chance to take out that 25% completely tax free and not considered against your taxable income  - probably a question for an IFA rather than an FA from Canada Life or suchlike.  Sometimes they will just tell you whether you are legally allowed to do something, but they won't tell you whether it's a good idea for you personally to do that or not. 
  • Pat38493 said:
    You will probably get a lot of differing opinions about Annuity vs drawdown - in the end it depends a lot on your attitude to risk and volatility and if you are planning to see an IFA, hopefully they would take you through those conversations.

    My personal view is that even with the more attractive prices now, annuities are still quite likely, but not certain, to leave you worse off in the long term - guarantees are expensive in the end.  However I may have a totally different outlook to many others on the boards.  Also this assumes that you take the trouble to make sure your investments are managed appropriate e.g. not using life styling unless it's appropriate for your case.

    One other immediate topic for this tax year - are you a higher rate taxpayer in the current tax year?  If so you might want to check if it makes sense to put some of your cash savings into a SIPP already - if you have just stopped work this year this could be your last chance to get valuable tax relief matching your earnings.  Even if you are basic rate taxpayer it might still be advantageous but you would have to do some simple calculations to figure it out.

    Thank you Pat.  Yes i agree its just personal preference and Opinion re annuity V drawdown.  Being honest, I guess the annuity route at this stage just seems a simpler route to take rather than confusing myself regarding which  funds/platforms etc to select and then maybe kicking myself if i've chosen the wrong one if it under-performs.

    For my first post I was originally hoping to post some pictures showing what my funds were invested in but it says I have to make a few posts before being allowed to do so!

    Yes I was a higher rate taxpayer and I had already maxed out 60K into my pension this current tax year before I left.  I have maxed out for the last few years and also took advantage of going back 3 earlier years when I hadn't contributed fully.
  • Pat38493 said:
    QrizB said:
    Just picking up on one point, I think you will have to take your 25% tax free if you plan to buy a 5-year annuity. So your £462k pot is really £115.5k TFLS plus £346.5k taxable and available for annuity purchase.
    What you do with the £115.5k is up to you; you might choose to invest some of it in a SSISA, give some to your husband for his SSISA, and the rest in a general investment account.
    Somebody will correct me if I've got this wrong.
    And is there a reason why your £230k is all in cash?
    Hi thanks for your reply.  An advisor that I spoke to at Canada Life said I could put the full amount in... so unless he's given my duff info!

    Regarding the 230K, I guess we just haven't gone via the S&S route, 100K of it is in P' bonds
    I think that legally you could put the full pension amount into an annuity, but whether this actually makes financial sense is another question because you are forgoing the chance to take out that 25% completely tax free and not considered against your taxable income  - probably a question for an IFA rather than an FA from Canada Life or suchlike.  Sometimes they will just tell you whether you are legally allowed to do something, but they won't tell you whether it's a good idea for you personally to do that or not. 
    Thank you Pat, Yes completely agree and I will be seeing an IFA, just interested to get some views on here too that I may be able to add into any conversation with an IFA
  • Albermarle
    Albermarle Posts: 25,919 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    Regarding an annuity in general. By far the most common way is to take the 25% TFLS and buy an annuity with the rest. The annuity is then taxable like any pension income.
    It is possible to buy an annuity with non pension money ( such as savings) but the rates tend to be not as good as it is very much a niche area. Not sure about buying an annuity with a pension pot without taking the 25% tax free though. 
    If you go down the drawdown route, you can not just take taxable income without taking some tax free cash.
    For example if you wanted to take £12K taxable income, then £16K of your uncrystallised pension would have to be crystallised. You would get £4K tax free and £12 taxable. 
    However some providers can not facilitate this, and require you to take all the tax free money first before taking any taxable money. 
    SL do facilitate drawdown, but they may have to switch you internally from an older pension to a new one. I am not sure how flexible the drawdown arrangements would be though.
  • Regarding an annuity in general. By far the most common way is to take the 25% TFLS and buy an annuity with the rest. The annuity is then taxable like any pension income.
    It is possible to buy an annuity with non pension money ( such as savings) but the rates tend to be not as good as it is very much a niche area. Not sure about buying an annuity with a pension pot without taking the 25% tax free though. 
    If you go down the drawdown route, you can not just take taxable income without taking some tax free cash.
    For example if you wanted to take £12K taxable income, then £16K of your uncrystallised pension would have to be crystallised. You would get £4K tax free and £12 taxable. 
    However some providers can not facilitate this, and require you to take all the tax free money first before taking any taxable money. 
    SL do facilitate drawdown, but they may have to switch you internally from an older pension to a new one. I am not sure how flexible the drawdown arrangements would be though.
    Thank you Albermarle, very helpful.  To be honest I find the SL one a bit frustrating as the 'bonus' part seems to tick along nicely and then all of a sudden once or twice a year BANG, it gets slashed.  Month before last it reduced by about 6K!!  I know its all to do with the 'with profits' element and something called 'smoothing' i believe, but frustrating all the same.
  • Regarding an annuity in general. By far the most common way is to take the 25% TFLS and buy an annuity with the rest. The annuity is then taxable like any pension income.
    It is possible to buy an annuity with non pension money ( such as savings) but the rates tend to be not as good as it is very much a niche area. Not sure about buying an annuity with a pension pot without taking the 25% tax free though. 
    If you go down the drawdown route, you can not just take taxable income without taking some tax free cash.
    For example if you wanted to take £12K taxable income, then £16K of your uncrystallised pension would have to be crystallised. You would get £4K tax free and £12 taxable. 
    However some providers can not facilitate this, and require you to take all the tax free money first before taking any taxable money. 
    SL do facilitate drawdown, but they may have to switch you internally from an older pension to a new one. I am not sure how flexible the drawdown arrangements would be though.
    I forgot to add that I don't really want the tax free sum at the moment as i have no real use for it and also if I did then it would become part of my estate for IHT purposes so at this stage i'd rather keep it out of that.
  • Albermarle
    Albermarle Posts: 25,919 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    Regarding an annuity in general. By far the most common way is to take the 25% TFLS and buy an annuity with the rest. The annuity is then taxable like any pension income.
    It is possible to buy an annuity with non pension money ( such as savings) but the rates tend to be not as good as it is very much a niche area. Not sure about buying an annuity with a pension pot without taking the 25% tax free though. 
    If you go down the drawdown route, you can not just take taxable income without taking some tax free cash.
    For example if you wanted to take £12K taxable income, then £16K of your uncrystallised pension would have to be crystallised. You would get £4K tax free and £12 taxable. 
    However some providers can not facilitate this, and require you to take all the tax free money first before taking any taxable money. 
    SL do facilitate drawdown, but they may have to switch you internally from an older pension to a new one. I am not sure how flexible the drawdown arrangements would be though.
    Thank you Albermarle, very helpful.  To be honest I find the SL one a bit frustrating as the 'bonus' part seems to tick along nicely and then all of a sudden once or twice a year BANG, it gets slashed.  Month before last it reduced by about 6K!!  I know its all to do with the 'with profits' element and something called 'smoothing' i believe, but frustrating all the same.
    Just be clear ( as many posters are confused on this point) that the pension provider and the investments within the pension are two different things. In your case the provider of the pension is SL and the provider of the investment is SL, but they are still two different items.
    For example you could stay with SL as the pension provider ( generally good website and customer service) but change the investment(s) you hold within it.
    With Profits funds are  quite old fashioned and not as popular as they were. Mainly because they are a bit of a black box as to how they are invested, how the calculations, smoothing and bonuses work. Charges are also on the higher side. On the other hand they can be quite reassuringly stable when other funds are dropping.
    So can be OK as part of a portfolio but not really ideal as the main part.
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