Taking pension benefits from Aviva Stakeholder after age 75

jsinc

Mum age 70 retired this year. State + NHS pension now meet her essential spending needs. She'd like to start taking benefits from Aviva Stakeholder within the next year via UFPLS. Withdraw £X lump sum annually with 25% tax free & 75% taxed as income, leaving the rest invested.

We've asked Aviva some Qs but their answers aren't clear to us vs. what she expected.
Would appreciate any clarification before following up with them.

Mum Q1: "If I begin UFPLS/Drawdown before age 75 can you please confirm I can continue after age 75?"

Aviva A1: "All funds have to be crystallised before 75th birthday but can continue to have funds in drawdown after 75"

Mum Q2: "Can I buy an annuity at any age (after age 75) from remaining funds in my pension, regardless of whether I've already started UFPLS/drawdown?"

Aviva A2: "Can have an annuity at any age but if over 75 all funds have to be in drawdown"

Are we reading correctly this infers UFPLS post-75 isn't an option with Aviva, or even ongoing piecemeal drawdown (because "all funds have to be crystallised before 75th birthday" and "all funds have to be in drawdown")?

As she wants to take her Aviva pension as a number of probably-but-not-necessarily similar annual £X lump sums for many years, it seems to necessitate a transfer to a more flexible pension provider at latest before age 75?

This doesn't seem to be a universal rule. Is it just an Aviva Stakeholder thing? Do other providers accept transfers from a Stakeholder like this if she's already started accessing via UFPLS? I've read through her Stakeholder Key Features document and these issues aren't specifically spelled out.

Are there any other more flexible and retail-available Stakeholder pensions, as she favours 100% FSCS insured? Thanks

dunstonh

Mum Q1: "If I begin UFPLS/Drawdown before age 75 can you please confirm I can continue after age 75?"
Aviva A1: "All funds have to be crystallised before 75th birthday but can continue to have funds in drawdown after 75"

Stakeholder pensions were never designed to have drawdown functionality.   However, some plans have been able to build in limited functionality.    What Aviva are saying here is that they do not support partial UFPLS and that the whole 25% has to be taken before 75.   

Mum Q2: "Can I buy an annuity at any age (after age 75) from remaining funds in my pension, regardless of whether I've already started UFPLS/drawdown?"
Aviva A2: "Can have an annuity at any age but if over 75 all funds have to be in drawdown"

The short answer is yes she can.

Are we reading correctly this infers UFPLS post-75 isn't an option with Aviva, or even ongoing piecemeal drawdown (because "all funds have to be crystallised before 75th birthday" and "all funds have to be in drawdown")?

Aviva do support UFPLS on their modern plans or plans that were originally set up to support drawdown.   They just don't support UFPLS on that version of the stakeholder pension.

As she wants to take her Aviva pension as a number of probably-but-not-necessarily similar annual £X lump sums for many years, it seems to necessitate a transfer to a more flexible pension provider at latest before age 75?

That is the most common outcome.

This doesn't seem to be a universal rule. Is it just an Aviva Stakeholder thing? Do other providers accept transfers from a Stakeholder like this if she's already started accessing via UFPLS? I've read through her Stakeholder Key Features document and these issues aren't specifically spelled out.

Its not a rule.  Its a consequence.
Stakeholders have been largely obsolete for about 15 years. They were already passed by personal pensions 20 years ago in terms of cost and about 15 years ago by SIPPs.    They are an old fashioned product that really only have a niche use nowadays.

Stakeholder rules come from 2001.   UFPLS is a 2015 creation.  Its a bit like having a black and white TV and expecting it to offer  ultra HD widescreen. 

The issues wont be spelt out in the KFD as stakeholder pensions never offered drawdown functionality.   The fact that Aviva have managed to get limited functionality built on it is actually pretty good.  Most providers haven't bothered.

Are there any other more flexible and retail-available Stakeholder pensions, as she favours 100% FSCS insured? Thanks

No.   However, there are some personal pensions left that offer it and have 100% FSCS protection.  A small number of SIPPs also offer drawdown using insured funds, including Aviva.   However, it may be better if she improved her knowledge and understanding of unit linked investments to remove her self imposed requirement to use insured funds.   That would then give her far more choice going forward.

zagfles

Is there a reason she wants to leave potential tax free cash in the pension post 75? I think it's generally considered sensible to take all tax free cash by 75 unless there's a good reason not to, because any inherited pension would be subject to income tax on the beneficiary. May be worth a chat with pensionwise. 

jsinc

dunstonh said:

Stakeholder pensions were never designed to have drawdown functionality.   However, some plans have been able to build in limited functionality.    What Aviva are saying here is that they do not support partial UFPLS and that the whole 25% has to be taken before 75 ...   

... No.   However, there are some personal pensions left that offer it and have 100% FSCS protection.  A small number of SIPPs also offer drawdown using insured funds, including Aviva.   However, it may be better if she improved her knowledge and understanding of unit linked investments to remove her self imposed requirement to use insured funds.   That would then give her far more choice going forward.

Thanks for taking the time to reply so quickly.

One follow-up question if ok, focusing on transferring elsewhere:

I think she can transfer now to most other personal pensions/SIPPS. Are her alternate-provider options as broad if she does it in a year or two after she has started accessing via UFPLS with Aviva Stakeholder?

The FSCS thing is mostly due to her previous experience with Equitable Life and concerns about associated loss, although I think it turned out ok. She's not otherwise particularly risk averse with fund choices or related investment risk.

jsinc

zagfles said:

Is there a reason she wants to leave potential tax free cash in the pension post 75? I think it's generally considered sensible to take all tax free cash by 75 unless there's a good reason not to, because any inherited pension would be subject to income tax on the beneficiary. May be worth a chat with pensionwise. 

I think it's just that she probably won't need all the tax free cash by 75.

I understand the inheritance tax angle but legacy isn't a priority consideration. Maybe it should be post-budget and post-consultation outcome. We've talked about it but it's something that's hard to get specific on (e.g. modelling scenarios) as I want it to always reflect her thoughts not mine.

Agree on pensionwise and informed advice generally. Thanks

AlanP_2

Inheritance may not be a key issue but there seems little point in leaving tax free cash in the pension after 75 based on the current rules.

The proposed addition of IHT doesn't materially impact on that. If the estate is greater than the IHT threshold it will be charged whether the investments are held inside the pension or ISA wrapper or unwrapped but withdrawing the TF cash avoids beneficiary income tax on top.

dunstonh

I think she can transfer now to most other personal pensions/SIPPS. Are her alternate-provider options as broad if she does it in a year or two after she has started accessing via UFPLS with Aviva Stakeholder?

No issues transferring later.   Modern SIPPs have no limits on functionality (ignoring pretend SIPPs that market themselves as SIPPs when they have little or no SIPP functionality but that is a whole different thread).

The FSCS thing is mostly due to her previous experience with Equitable Life and concerns about associated loss, although I think it turned out ok. She's not otherwise particularly risk averse with fund choices or related investment risk.

Equitable life was a with profits fund.   WP funds were directly linked to the solvency of the insurer.   However, unit linked funds are not.   The provider is little more than an administrator with unit linked funds.

I think it's just that she probably won't need all the tax free cash by 75.

The general financial planning position now, is to start diverting the TFC into an S&S ISA so there is no 25% left in the pension at age 75.    As pensions and S&S ISAs share the same investments at the same cost and can be on the some investment platform, its a simple transaction to do over the years.

Agree on pensionwise and informed advice generally. Thanks

Be aware that pensionwise wont give advice and won't get involved in discussions in the use of alternative tax wrappers.  It may not be that helpful when looking at optimal solutions.

jsinc

AlanP_2 said:

Inheritance may not be a key issue but there seems little point in leaving tax free cash in the pension after 75 based on the current rules.

The proposed addition of IHT doesn't materially impact on that. If the estate is greater than the IHT threshold it will be charged whether the investments are held inside the pension or ISA wrapper or unwrapped but withdrawing the TF cash avoids beneficiary income tax on top.

Good points, thanks

jsinc

dunstonh said:

I think she can transfer now to most other personal pensions/SIPPS. Are her alternate-provider options as broad if she does it in a year or two after she has started accessing via UFPLS with Aviva Stakeholder?

No issues transferring later.   Modern SIPPs have no limits on functionality (ignoring pretend SIPPs that market themselves as SIPPs when they have little or no SIPP functionality but that is a whole different thread).

The FSCS thing is mostly due to her previous experience with Equitable Life and concerns about associated loss, although I think it turned out ok. She's not otherwise particularly risk averse with fund choices or related investment risk.

Equitable life was a with profits fund.   WP funds were directly linked to the solvency of the insurer.   However, unit linked funds are not.   The provider is little more than an administrator with unit linked funds.

I think it's just that she probably won't need all the tax free cash by 75.

The general financial planning position now, is to start diverting the TFC into an S&S ISA so there is no 25% left in the pension at age 75.    As pensions and S&S ISAs share the same investments at the same cost and can be on the some investment platform, its a simple transaction to do over the years.

Agree on pensionwise and informed advice generally. Thanks

Be aware that pensionwise wont give advice and won't get involved in discussions in the use of alternative tax wrappers.  It may not be that helpful when looking at optimal solutions.

Appreciate your responses. Lots to investigate and discuss. Thanks again.

Albermarle

I think she can transfer now to most other personal pensions/SIPPS. Are her alternate-provider options as broad if she does it in a year or two after she has started accessing via UFPLS with Aviva Stakeholder?

It is certainly possible, but a few providers will not accept pensions that have already been withdrawn from.
Nor sure of the size of the pot but there are also cashback deals around for pension transfers. This of course should not be the primary reason  for transferring, but can be a useful bonus.
Regarding the 100% FSCS compensation .
As long as you stick to mainstream providers, it is not really a worry. In any case in a financial Armageddon situation, it is not clear this 100% cover could feasibly be supported anyway.

jsinc

Albermarle said:

I think she can transfer now to most other personal pensions/SIPPS. Are her alternate-provider options as broad if she does it in a year or two after she has started accessing via UFPLS with Aviva Stakeholder?

It is certainly possible, but a few providers will not accept pensions that have already been withdrawn from.
Nor sure of the size of the pot but there are also cashback deals around for pension transfers. This of course should not be the primary reason  for transferring, but can be a useful bonus.
Regarding the 100% FSCS compensation .
As long as you stick to mainstream providers, it is not really a worry. In any case in a financial Armageddon situation, it is not clear this 100% cover could feasibly be supported anyway.

Thanks, and hadn't considered cashback deals.

Had a quick search for non-workplace non-stakeholder pensions that offer 100% insured funds and there doesn't seem to be an obvious list out there anyway. I guess it's limited to those offered by the bigger insurers, but no idea really, so will require more research if pursuing that option.