Take a lump sum offered for tax purposes

ChequeBookGerry

Hi,

Just doing some broad pension planning...  I have multiple annuity pensions that I have accumulated over my career which will, between my wife and I inlcuding state pension (at current estimates) generate about £5k net per month, after about £800 tax is paid.  I have also been trying to build up a SIPP outside of that.  So, the strategy was to leave all the annuties in place and then draw down on the SIPP over time.  If I look at one of the pensions, it has a "value" of £172k, a transfer value of £150k and either a projected mid-range annuity of £11.4k or a lump sum of £43k and reduced annuity of £8.6k (difference of £2.8k pa).  I'm in decent health so assuming I croak at 85, that is 20 years of reduced payout.  So, couple of questions - without looking into the deep details, please....  Is it worth looking at the tax free lump sum purely to avoid some higher rate tax and second based on those numbers, is it worth looking at transferring out then drawing down?  (I'm not asking for a "yes, do it" answer just a "yes, based on my experience, that would be something to look at" or "no, those annual numbers look solid so leave it".) 

Many thanks.

Dazed_and_C0nfused

Are the pensions you refer to as "annuities" actually defined benefit pensions?

And if so are they public sector schemes with unlimited inflation protection and surviving spouse pensions payable?

Marcon

ChequeBookGerry said:

Hi,

Just doing some broad pension planning...  I have multiple annuity pensions that I have accumulated over my career which will, between my wife and I inlcuding state pension (at current estimates) generate about £5k net per month, after about £800 tax is paid.  I have also been trying to build up a SIPP outside of that.  So, the strategy was to leave all the annuties in place and then draw down on the SIPP over time.  If I look at one of the pensions, it has a "value" of £172k, a transfer value of £150k and either a projected mid-range annuity of £11.4k or a lump sum of £43k and reduced annuity of £8.6k (difference of £2.8k pa).  I'm in decent health so assuming I croak at 85, that is 20 years of reduced payout.  So, couple of questions - without looking into the deep details, please....  Is it worth looking at the tax free lump sum purely to avoid some higher rate tax and second based on those numbers, is it worth looking at transferring out then drawing down?  (I'm not asking for a "yes, do it" answer just a "yes, based on my experience, that would be something to look at" or "no, those annual numbers look solid so leave it".) 

Many thanks.

You're mixing terminology and probably confusing yourself as well as others reading your post!

How many of your schemes are defined benefit (aka final salary/CARE - these pay pensions, usually with the option of a tax free lump sum of an amount detailed in the rules of the particular scheme) and how many are defined contribution (which you can access by drawing down and/or by buying an annuity. Maximum tax free cash is 25%)?

In particular, what type of scheme is the one I've emboldened above - where does the 'value' of £172K come from when the transfer value is £150K?

ChequeBookGerry

Dazed_and_C0nfused said:

Are the pensions you refer to as "annuities" actually defined benefit pensions?

And if so are they public sector schemes with unlimited inflation protection and surviving spouse pensions payable?

No, not defined benefits.  Just projected annual payments on define contribution schemes.

dharm999

To be honest, you’re answer doesn’t make sense, as DC schemes don’t operate like that.  Can you provide more info on them, to help understand what they are.

Dazed_and_C0nfused

dharm999 said:

To be honest, you’re answer doesn’t make sense, as DC schemes don’t operate like that.  Can you provide more info on them, to help understand what they are.

The op has another recent thread regarding two of his wife's pensions which are both 100% defined benefit schemes (NHS and Teachers).

Marcon

ChequeBookGerry said:

Dazed_and_C0nfused said:

Are the pensions you refer to as "annuities" actually defined benefit pensions?

And if so are they public sector schemes with unlimited inflation protection and surviving spouse pensions payable?

No, not defined benefits.  Just projected annual payments on define contribution schemes.

Then why the reference to transferring out the one with a 'value' of £172K, especially if you'd immediately lose £22K if the transfer value is only £150K - is this a particularly old DC scheme which doesn't offer drawdown?

DRS1

Maybe they are Retirement Annuity Contracts - the predecessor of the personal pension scheme?

The value of £172k and transfer value of £150k could be a market value reduction?

Marcon

DRS1 said:

Maybe they are Retirement Annuity Contracts - the predecessor of the personal pension scheme?

The value of £172k and transfer value of £150k could be a market value reduction?

Thank you. I'd pondered the same but was rather hoping to hear it direct from OP without giving any 'prompts' for possible answers!

ChequeBookGerry

DRS1 said:

Maybe they are Retirement Annuity Contracts - the predecessor of the personal pension scheme?

The value of £172k and transfer value of £150k could be a market value reduction?

Yes, they are very old.  At least 20 years. No drawdown on offer, hence the question...  The transfer value is always going to be lower than the fund value.

Dazed_and_C0nfused

ChequeBookGerry said:

DRS1 said:

Maybe they are Retirement Annuity Contracts - the predecessor of the personal pension scheme?

The value of £172k and transfer value of £150k could be a market value reduction?

Yes, they are very old.  At least 20 years. No drawdown on offer, hence the question...  The transfer value is always going to be lower than the fund value.

New Retirement Annuity contracts stopped being sold 37 years ago I think.