Pension Pot Drawdown Or Not?

eric4395

My wife and i are retired both 69 years old and in good health.  House owned  worth approx a modest (£140,000) Mortgage paid and no debt
My  only income is the  gov state pension which is less than £12,570
My wife has gov state pension  + a small tesco pension however it is still less than £12570 pa
I realise with the increases from April in the state pension we will prob be above the £12570   and subject to tax from April.
My ex works DC pension pot is with Royal London governed porfolio 1 funds ( cautious). I have been in this for over 10 years and watched it ebb and flow up and down over the years. I had a financial adviser who set this up for us and suggested in our  circumstances that flexible drawdown would be a good option for us as and when required.
He retired last year so we dont have an adviser now
The fund has done well over the last year and has approx £525,000 in the pot.
I contacted RL and asked about drawdown they said i would be entitled to 25% of this tax free ie   £131,250 as it stands at the moment.
My pot would be transfered over to a new plan called   pension porfolio with income release.
It could still be with same funds set up governed porfolio 1, so the same risk as before.
The fees would be  the same as they are now a reasonable  0.4 %  so  over £2000  per year
I would only be interested in taking  £20,000 out say every year  over the next 6/7  years till i used my tax free sum up.
 However i am not sure if this is even sensible to do as i would prob just put that sum ( £20,000 ) into an isa either fixed or easy access.
This is  because we also have savings of approx £300,000 and shares worth approx £50,000
The savings  are mostly in isas due to mature  this year , next year and 2026.
I  believe we have enough in our savings to last us easily till well into our 80's without even touching my pension. We pay our bills and go 3 or 4 holidays a year  and are perfectly happy and fortunate to be able to do this.
 We have a son and daughter and 3 grand children  age 21, 17  and 6 who we also help with cash handouts occasionaly . Have opened up a lisa for the 21 year old which we plan to put £4000   every year for 4 years so he will have £20,000 +  in a couple of years. Will do the same for the 17 year old, and prob open a child  isa for the 6 year old shortly..
So my query is do we just leave my pension pot as is, untouched and live off my savings  or is there actually any sense whatsoever in taking my tax free lump sums out.
My wife is down as the only beneficiary for my pension however was wondering if i should actually add my son and daughter to it as well and even my 3 granchildren. If i was to die then it would be a 25% split between wife , son , daughter & 25% between the 3 grandchildren.
At the end off the day nobody knows whats in front of them it could all be used up for care home fees in the future ?
Sorry for the long winded story but if you were in my situation what would you be inclined to do. 
I dont wish to pay a finincial adviser £ xxx amount to tell me to do one or the other.

Albermarle

An important point is around inheritance tax .
A pension pot left when you die is outside your estate ( because it is held in trust by Royal London in your case)
This means you do not include it in your will but you should inform Royal London who you would like to be the beneficiary after you die. It therefore means it is not included in your estate when any IHT liability is calculated.

Now as you are married and will presumably leave the house to your children, IHT will not be an issue until the Second Death. In this case at the moment you will have an estate worth about £500K and will not pay IHT on anything below One Million. However if you took all the money out of your pension, it could be an issue.

Probably best to leave it alone, or largely alone, unless you need it .

Marcon

Your post is quite lengthy but lacks much essential detail - and, in particular, it is short on the 'personal' element which can only be picked up by a proper fact find. 

In your situation I'd be inclined to seek proper financial advice. Your last adviser seems to have done pretty well for you... A good adviser won't 'tell you to do one or the other' - they will explain the range of options open to you and the advantages/disadvantages of taking/not taking particular courses of action. 

With your level of assets it could be extremely sensible to do so rather than relying on 'free' input based on so little hard knowledge.

dunstonh

My pot would be transfered over to a new plan called   pension porfolio with income release.

Exactly the same plan.  Just a different version number. The early version numbers of the old Scottish Life plan don't have the coding to do drawdown.    So, they move it internally to the current version.  Everything else is the same.

I would only be interested in taking  £20,000 out say every year  over the next 6/7  years till i used my tax free sum up.
 However i am not sure if this is even sensible to do as i would prob just put that sum ( £20,000 ) into an isa either fixed or easy access.

Quite rightly, you are questioning that as it doesn't appear to achieve any particular objective other than to increase your estate.

So my query is do we just leave my pension pot as is, untouched and live off my savings  or is there actually any sense whatsoever in taking my tax free lump sums out.

As mentioned above, we are limited on information but nothing you have said so far suggests any justifiable reason for accessing the pension.

My wife is down as the only beneficiary for my pension however was wondering if i should actually add my son and daughter to it as well and even my 3 granchildren. If i was to die then it would be a 25% split between wife , son , daughter & 25% between the 3 grandchildren.

No hurry.  If your wife inherits the pension as it is, then she will need to redo the expression of wish anyway and she can pick the ultimate beneficiaries

At the end off the day nobody knows whats in front of them it could all be used up for care home fees in the future ?

Outside of the pension, yes.  Inside the pension, no.

I dont wish to pay a finincial adviser £ xxx amount to tell me to do one or the other.

And the internet will get you people saying do different things and maybe wrong things.
Maybe you should be looking at why you are in GP1 at this stage.  That seems something that should be looked at based on the limited information we have.

eric4395

dunstonh said:

My pot would be transfered over to a new plan called   pension porfolio with income release.

Exactly the same plan.  Just a different version number. The early version numbers of the old Scottish Life plan don't have the coding to do drawdown.    So, they move it internally to the current version.  Everything else is the same.

I would only be interested in taking  £20,000 out say every year  over the next 6/7  years till i used my tax free sum up.
 However i am not sure if this is even sensible to do as i would prob just put that sum ( £20,000 ) into an isa either fixed or easy access.

Quite rightly, you are questioning that as it doesn't appear to achieve any particular objective other than to increase your estate.

So my query is do we just leave my pension pot as is, untouched and live off my savings  or is there actually any sense whatsoever in taking my tax free lump sums out.

As mentioned above, we are limited on information but nothing you have said so far suggests any justifiable reason for accessing the pension.

My wife is down as the only beneficiary for my pension however was wondering if i should actually add my son and daughter to it as well and even my 3 granchildren. If i was to die then it would be a 25% split between wife , son , daughter & 25% between the 3 grandchildren.

No hurry.  If your wife inherits the pension as it is, then she will need to redo the expression of wish anyway and she can pick the ultimate beneficiaries

At the end off the day nobody knows whats in front of them it could all be used up for care home fees in the future ?

Outside of the pension, yes.  Inside the pension, no.

I dont wish to pay a finincial adviser £ xxx amount to tell me to do one or the other.

And the internet will get you people saying do different things and maybe wrong things.
Maybe you should be looking at why you are in GP1 at this stage.  That seems something that should be looked at based on the limited information we have.

Many thanks for taking the time to  reply dunstonh. 
 Looking at the other portfolios 1-9 
1 is grade rated as cautious which I would have thought is appropriate in my situation . The only other one cautious is RL governed  portfolio 2.
I'm not sure what's missing on   the limited information side I thought I was giving you my life story 😊 

dunstonh

1 is grade rated as cautious which I would have thought is appropriate in my situation . The only other one cautious is RL governed  portfolio 2.

Apologies, I was mixing it up with another GP number.  I dislike RL's numbering system.
However, it is still worth a look the picture holistically and not on a per product basis.

£300k cash
£50k in high risk equities
Penson of £525k with 61% equities.
That is £875,000 of which £370,250 is equities.
Does that mix of assets reflect the way you are going to spend the money?

eric4395

dunstonh said:

1 is grade rated as cautious which I would have thought is appropriate in my situation . The only other one cautious is RL governed  portfolio 2.

Apologies, I was mixing it up with another GP number.  I dislike RL's numbering system.
However, it is still worth a look the picture holistically and not on a per product basis.

£300k cash
£50k in high risk equities
Penson of £525k with 61% equities.
That is £875,000 of which £370,250 is equities.
Does that mix of assets reflect the way you are going to spend the money?

Apologies you have lost me here 
What is the 300,000 cash got to do with my pension as they are savings
What is the 50k in high risk equities?
We have approx 50k in shares  in Tesco, Shell etc?
 What is the figure of £875,000 based on  ?
Are you saying 61% of £525,000 in equities is to high even although it's rated as a cautious fund,
Is there an alternative in RL  governed portfolio's 1- 9 ?
 And unsure what mix of assets reflect the way I am going to spend the money  means?.

jamesd

If you were planning to regularly draw an income you might choose an investment mix intended for that, optimal for income maximizing being about 60% equities.  But of course also depending on your own ability to handle drops.

In your case the plan seems to be to keep the pension invested until you die, then pass it on for inheritance. As long as you can handle the drops that would imply a higher growth, higher equities mixture.

High risk is where equity funds sit. A potential drop of 20% or so twice a decade and 45% once a decade.

Bostonerimus1

I think you need to decide your ultimate goals. ie do you want to go on lots of holidays and spend your money or do you want to leave a large legacy to charities or your children. If it's the latter then keeping money inside the pensions seems sensible to reduce IHT issues, at least for the children, and your current exposure to income tax. If you can leave things to grow tax free for as long as possible it's often a good thing. Of course the devil will be in the details of tax rates and timing of withdrawals.

So decide what you want and come up with a plan. In tax management scenarios like your own you would need to set up a spreadsheet with the relevant tax rates and possible investment returns and go over a number of scenarios, or it might be easier to employ a tax specialist.

jamesd

Dunstonh was looking at your total investable assets and calculating the overall equity percentage, which is a sensible way to do it.

There are some guidelines which suggest that £875,000 could provide you with 30 years of £28,000 a year extra income, increasing with inflation every year. In a repeat of the worst historic UK investment performance nothing would be left at the end but a substantial amount is more likely, as is dying before the thirty years is up.

To increase guaranteed income you could defer your state pensions and draw down investments instead. It'll increase by 5.8% for each year deferred, pro-rated for less.

Quite a few regular posters here including me would wonder whether spending more could improve your quality of life. A world cruise or two, perhaps.

For inheritance planning one of the best things you can do is give while alive. £2880 net of pension contributions to grandchildren and children perhaps plus LISA. For those with a stable housing need it can be very good to help buy a flat instead of renting.

eric4395

Bostonerimus1 said:

I think you need to decide your ultimate goals. ie do you want to go on lots of holidays and spend your money or do you want to leave a large legacy to charities or your children. If it's the latter then keeping money inside the pensions seems sensible to reduce IHT issues, at least for the children, and your current exposure to income tax. If you can leave things to grow tax free for as long as possible it's often a good thing. Of course the devil will be in the details of tax rates and timing of withdrawals.

So decide what you want and come up with a plan. In tax management scenarios like your own you would need to set up a spreadsheet with the relevant tax rates and possible investment returns and go over a number of scenarios, or it might be easier to employ a tax specialist.

 We intend to do both I think the money we have available cash wise is enough for us to go as many holidays as we wish or spend as we wish  and also my pension pot is a very decent sum to leave to my family, if we need to access it in later life and are still able to go holidays then that is when I would prob look at taking some of the tax free portion from my pension. My original query was should I take the tax free sum every year over the next few years but opinion seems to be against that.