Pension/annuity questions

SandraBam

Hi, My pension is due to payout next year when I am 60.  I was thinking about transferring it into a fixed term guaranteed income annuity, with a lump sum before and after the fixed term. I have a few questions and wondered if anyone could answer them for me please:-

If I die before the end of the fixed term can unused pension (including annual payments and maturity payment) be inherited by my partner/children. Do they pay inheritance tax?

If I take 25% tax free lump sum, do I pay tax on annual pension payment if it is less than my annual tax allowance. To avoid paying tax do I take my first annual payment the new tax year after receiving lump sum.

After the fixed term, can I buy another annuity with the maturity lump sum to get another guaranteed yearly payment.

Pension recycling, does this only apply to the tax free lump sum?

Thanks

Sandra

Brie

What type of pension is it?  Defined Benefit or defined contribution?

Hoenir

Annuities come in many forms. Guarantees come at a cost. May well be worth seeking advice and understanding the potential options that are available. In order to make an informed decision. Once made a decision cannot be reversed. 

Marcon

SandraBam said:

Hi, My pension is due to payout next year when I am 60.  I was thinking about transferring it into a fixed term guaranteed income annuity, with a lump sum before and after the fixed term. I have a few questions and wondered if anyone could answer them for me please:-

If I die before the end of the fixed term can unused pension (including annual payments and maturity payment) be inherited by my partner/children. Do they pay inheritance tax?

From the sound of it, you are talking about a defined contribution pension scheme? 

You can't transfer it into an annuity; you'd need to use some or all of the 'pot' to buy an annuity. The terms of that annuity will be whatever is agreed when you buy it. The 'better' the guarantee, the more it'll cost to buy. 

Currently no IHT unless the pension passes as of right to your estate - and even then there is no IHT payable IF you are married to your partner, or in a civil partnership with them, when you die.

SandraBam said:

If I take 25% tax free lump sum, do I pay tax on annual pension payment if it is less than my annual tax allowance. To avoid paying tax do I take my first annual payment the new tax year after receiving lump sum.

Do you mean 'annual payment' as in you have one payment a year, or 'annual' as in 'regular monthly payments during the year'? If the former, you can reclaim any tax overpaid by contacting HMRC - you don't need to complete a self assessment form and you don't need to wait for the new tax year before you can claim it back. If the latter, any overcharge will correct automatically within a month or two.

SandraBam said:

After the fixed term, can I buy another annuity with the maturity lump sum to get another guaranteed yearly payment.

Pension recycling, does this only apply to the tax free lump sum?

Thanks

Sandra

See https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/guaranteed-retirement-income-annuities-explained#:~:text=At%20the%20end%20of%20the,you've%20received%20so%20far.

You won't get tax relief if you use the maturity lump sum to buy another annuity, so recycling doesn't apply. You only get tax relief on pension contributions made in respect of 'relevant earnings' - although virtually anyone under 75 can contribute £2,880 to a pension pot and have it topped up by basic rate relief (again, pension recycling rules wouldn't apply if you did that).

Albermarle

Hi, My pension is due to payout next year when I am 60. 

If this is Defined Contribution pension, where there is basically just a pot of money, then they only payout when you want them to ( as long as you are over 55) . It is possible they have an arbitrary age in their system where they write to you with options, but you are not normally obliged to do anything. 

Pension basics | Help with pension basics | MoneyHelper

dunstonh

Hi, My pension is due to payout next year when I am 60. 

If it is defined contribution then taking it at 60 is a choice.  Your pension isn't due to mature then.  Its because you would have chosen to do so.   If you don't need it then, you just change the age and keep changing it if necessary.

SandraBam

Brie said:

What type of pension is it?  Defined Benefit or defined contribution?

I'm not sure, I thought it was defined contribution, buy after rechecking I think it is Defined Benefit.  If I transfer the money I will get £34K less.  So now I'm not sure if it's worth buying an annuity with it or just leaving it as it is 

LHW99

I think it is Defined Benefit.

That needs checking, as these are quite different to defined contribution pensions. Can you name it? Someone here will probably know what it is.