Can't decide between an annuity for my three pension pots combined OR taking lump sums and emptying

epsilon4900

I have three pension pots and I can't decide whether to take an annuity while rates are quite good eg now or to take tax free lump sums from two and remove as much from both over the next 5 years up to my old age pension. The idea being to use my tax allowance from stopping work potentially in the next tax year to remove these monies. I don't like the lack of being able to change my mind with an annuity or the inflexibility of it. I like the idea of gathering monies and reinvesting them in ways which maximize income. I also don't like the idea of having to take financial advice. This is my first posting here so please do advise if this is in the wrong place or I need to post in a different way and so on. Thanks.

xylophone

What does your state pension forecast show as your estimate at 5/4/23?

https://www.gov.uk/check-state-pension

How much is in each pension?

None of the pensions have a guaranteed annuity rate?

BoxerfanUK

Are you considering a lifetime annuity or a fixed term one?  There is a difference.

My other half also had the same dilemma and wants to take an income for the next 5 years to use up the personal tax allowance and was considering a 5 year term annuity.  In the end she opted to just go into drawdown due to the inflexibility of an annuity.

epsilon4900

XYLOPHONE  Thanks. System won't let me quote you as I am a newbie and your post contained links which I am not allowed to post or apparently repost?

Thanks for responding. I checked and I get the full State Pension apparently and I have worked out that I almost certainly will have to pay some tax on it by 2029 when I am due to receive it. Unless inflation totally disappears which I doubt!

One has 47k another has 54k and a final one has just over 10k. I plan to leave the 54k one alone to grow more as it has done really well over the 29 years since money actually went into it. The others have done terribly by comparison the 47k one is poor when you consider that I have been paying in to that for about a decade now after a lull for a few years. The 10k one is derisory. It came from monies from a job I did for 5 years and stopped doing more than 20 years ago. Very poor investment. No so far as I have checked none has a guaranteed annuity rate no.

BOXERFAN

Thanks.    I was considering a lifetime annuity. I'm not sure of the point of a fixed term one? You then after the fixed term have to decide what to do with the money left over if there is any and if there is not there would have had to be a really huge amount per year to make it worth bothering surely? I don't really understand why people opt for that one?

Would it have had a financial advantage to have a short term annuity eg 5 years ? I am thinking of taking my tax free lump sum/s and then removing 1k per month so as not to have any HMRC hiccups as it were.

Sarahspangles

epsilon4900 said:

Would it have had a financial advantage to have a short term annuity eg 5 years ? I am thinking of taking my tax free lump sum/s and then removing 1k per month so as not to have any HMRC hiccups as it were.

If these are straightforward defined contribution pots, with no bells and whistles, have you considered consolidating them into a SIPP? That would allow you to do what you are considering in the bit I cut and pasted - and flexibly so that you can adjust the amount you withdraw as you go along, tailored to the tax regime and your needs.

With a SIPP you have the option of drawing down and reinvesting drawings you don’t need immediately in a Stocks & Shares ISA.

While it does mean you have to make some decisions about fund choice in the SIPP, and get your head round acronyms, it sounds like you’re already coping with logging in to three different pensions! 

Albermarle

One has 47k another has 54k and a final one has just over 10k. I plan to leave the 54k one alone to grow more as it has done really well over the 29 years since money actually went into it. The others have done terribly by comparison the 47k one is poor when you consider that I have been paying in to that for about a decade now after a lull for a few years. The 10k one is derisory. It came from monies from a job I did for 5 years and stopped doing more than 20 years ago. Very poor investment. No so far as I have checked none has a guaranteed annuity rate no.

To be clear, the pensions themselves do not perform, it is the investments that are held within them that perform. Normally you have a choice of investments, but many just go to a default investment if the client does not choose anything different.

As suggested the admin for withdrawing would probably be easier if you first consolidated the pensions into one.

 I was considering a lifetime annuity. I'm not sure of the point of a fixed term one? You then after the fixed term have to decide what to do with the money left over if there is any and if there is not there would have had to be a really huge amount per year to make it worth bothering surely? I don't really understand why people opt for that one?

The short term annuity can bring some certainty, rather than invested pensions that can go up and down. Normally a sum would be returned at the end of the fixed term, that can buy another annuity or go back into a DC pension again.

epsilon4900

Sarahspangles said:

epsilon4900 said:

Would it have had a financial advantage to have a short term annuity eg 5 years ? I am thinking of taking my tax free lump sum/s and then removing 1k per month so as not to have any HMRC hiccups as it were.

If these are straightforward defined contribution pots, with no bells and whistles, have you considered consolidating them into a SIPP? That would allow you to do what you are considering in the bit I cut and pasted - and flexibly so that you can adjust the amount you withdraw as you go along, tailored to the tax regime and your needs.

With a SIPP you have the option of drawing down and reinvesting drawings you don’t need immediately in a Stocks & Shares ISA.

While it does mean you have to make some decisions about fund choice in the SIPP, and get your head round acronyms, it sounds like you’re already coping with logging in to three different pensions! 

What is the benefit of a SIPP over just getting the pension provider ( AVIVA ) to set me up with a drawdown account as surely I could do the same in that way? I don't understand the need for a SIPP and I admit I don't really understand what a SIPP is and I have tried to read up about them?

epsilon4900

Albermarle said:

One has 47k another has 54k and a final one has just over 10k. I plan to leave the 54k one alone to grow more as it has done really well over the 29 years since money actually went into it. The others have done terribly by comparison the 47k one is poor when you consider that I have been paying in to that for about a decade now after a lull for a few years. The 10k one is derisory. It came from monies from a job I did for 5 years and stopped doing more than 20 years ago. Very poor investment. No so far as I have checked none has a guaranteed annuity rate no.

To be clear, the pensions themselves do not perform, it is the investments that are held within them that perform. Normally you have a choice of investments, but many just go to a default investment if the client does not choose anything different.

As suggested the admin for withdrawing would probably be easier if you first consolidated the pensions into one.

 I was considering a lifetime annuity. I'm not sure of the point of a fixed term one? You then after the fixed term have to decide what to do with the money left over if there is any and if there is not there would have had to be a really huge amount per year to make it worth bothering surely? I don't really understand why people opt for that one?

The short term annuity can bring some certainty, rather than invested pensions that can go up and down. Normally a sum would be returned at the end of the fixed term, that can buy another annuity or go back into a DC pension again.

The thing is that I am quite happy with the one AVIVA one which is doing well.I don't want to touch it for a good few more years. If I consolidated them ( three  in all two with AVIVA and one with Phoenix Life ) I would worry about having to find a new provider as I don't trust AVIVA with other than the one I am hoping to empty if that makes sense. I am interested in a fixed term annuity but apparently the amount you get back at the end is not apparently guaranteed?

Sarahspangles

epsilon4900 said:

Sarahspangles said:

epsilon4900 said:

Would it have had a financial advantage to have a short term annuity eg 5 years ? I am thinking of taking my tax free lump sum/s and then removing 1k per month so as not to have any HMRC hiccups as it were.

If these are straightforward defined contribution pots, with no bells and whistles, have you considered consolidating them into a SIPP? That would allow you to do what you are considering in the bit I cut and pasted - and flexibly so that you can adjust the amount you withdraw as you go along, tailored to the tax regime and your needs.

With a SIPP you have the option of drawing down and reinvesting drawings you don’t need immediately in a Stocks & Shares ISA.

While it does mean you have to make some decisions about fund choice in the SIPP, and get your head round acronyms, it sounds like you’re already coping with logging in to three different pensions! 

What is the benefit of a SIPP over just getting the pension provider ( AVIVA ) to set me up with a drawdown account as surely I could do the same in that way? I don't understand the need for a SIPP and I admit I don't really understand what a SIPP is and I have tried to read up about them?

If you read the product information the AVIVA Income Drawdown product IS a SIPP.  AVIVA have worked hard to remove the jargon and acronyms from their marketing material, and maybe the product continues to be more user friendly than competitors if you choose it as your platform. However you would still need to make your own decisions about fund choice, that’s the self-investing part.

I used the https://monevator.com/compare-uk-cheapest-online-brokers/ page to choose a SIPP provider with the most cost effective fee structure for my circumstances.
 

dunstonh

What is the benefit of a SIPP over just getting the pension provider ( AVIVA ) to set me up with a drawdown account as surely I could do the same in that way?

Aviva use a SIPP for drawdown functionality.

epsilon4900

Thanks for letting me know about AVIVA and it being a SIPP. I think I had heard that when I spoke with them but didn't really take it in as at that point I was still fixated on getting an annuity so I didn't think it applied to me really. I am now going to research the details on taking a fixed term annuity for say the next 5 years as what I want up to my OAP pension all being well is a fixed income from this product. That is more important than a tax free lump sum per se. It's about budgeting till my OAP pension and taking some decisions then about the other AVIVA pension. Also to raid the small Phoenix Life one over the next 5 years concurrently.