Overwhelmed by pension options any advice please?

Zoho

Hi, I would appreciate any advice. My private pension is stuck for the past year with a FO dispute (in my favour), as the provider has not released information on exit terms. Crossing fingers, I can transfer it to a flexi-draw down fund in November when the markets are usually higher. The pension is worth about £58,000.

My previous options were Standard Life, Legal and General, Scottish Widows, or an AJ Bell SIPP. If I took 25% tax-free, I could invest £14,250 in a high interest cash account. The rest I could let grow for several more years, but which provider, and should I split funds to disperse risks? I am 62 years old, have a work pension of £10,000, and no other income. Though I own my place with low expenditure, a small income may also be useful if kept under the tax threshold, until my full state pension at aged 67.

QrizB

If you switch to a provider that allows UFPLS, you could take ~£12k a year for the 5 years until your state pension starts. Then the SP will pay you £12k a year (assuming you qualify for a full one) so you'll see no significant change to annual income.

dunstonh

If I took 25% tax-free, I could invest £14,250 in a high interest cash account.

Why would you take money out of the pension to put it in a savings account?    Is it because you plan to spend it in the next 12 or so months?

Marcon

Zoho said:

Hi, I would appreciate any advice. My private pension is stuck for the past year with a FO dispute (in my favour), as the provider has not released information on exit terms. Crossing fingers, I can transfer it to a flexi-draw down fund in November when the markets are usually higher. The pension is worth about £58,000.

My previous options were Standard Life, Legal and General, Scottish Widows, or an AJ Bell SIPP. If I took 25% tax-free, I could invest £14,250 in a high interest cash account. The rest I could let grow for several more years, but which provider, and should I split funds to disperse risks? I am 62 years old, have a work pension of £10,000, and no other income. 

Why not let the whole pension grow in a tax-favoured environment, and only take out cash when you actually have a use for it? 

Zoho said:

Though I own my place with low expenditure, a small income may also be useful if kept under the tax threshold, until my full state pension at aged 67.

Why would the small income only be 'useful' if it is kept under the tax threshold? 

You need to stop and think what you are actually trying to achieve. One of the reasons you are feeling 'overwhelmed' (not uncommon when it comes to the mysteries of pensions!) is because you don't seem to have any clear objectives or goals, so any road will get you there. How much cash do you need and when? Work that out and you could be well on the way to feeling much more in control.

Triumph13

Zoho said:

I have a work pension of £10,000, and no other income. 

This is a defined benefit pension of £10k a year. I take it?  If so, then the most you can take out of your other pension tax-free free is the 25%, plus £2.5k a year until the state pension kicks in.  The remaining £40k or so will be taxable at some point, so no reason to fret about when that is.
As others have said, the most important thing for you to decide is what the money is FOR.  Options to consider include increasing your post tax income now so that it is level with what it will be from 67.

Zoho

Thanks so much for your time and suggestions. To clarify my plans, in reply:

1)     UFPLS seems tied to death benefit allowance, and I don’t have any beneficiaries, but interesting idea.

2)     Rather than leaving it in the pension pot, I was thinking the £14,250 (25%) might achieve more growth in a fixed rate cash account or ISA over a few years, as I don’t need to spend it.

3)     Yes, I would like to increase my income from £10,000 to £12,500 until aged 67, which means drawing down £2,500 from my pension pot.

4)     But, for one or two years, I would like to contribute £2,500 to the pension and take advantage of the governments £750 top-up scheme.

5)     The question is which provider from the multitudes (or see above), and should I go direct to them after doing research, or can unrestricted FA’s get you a better deal (and, who to trust, even if FCA registered).

Any replies would be appreciated. 

Marcon

Zoho said:

2)     Rather than leaving it in the pension pot, I was thinking the £14,250 (25%) might achieve more growth in a fixed rate cash account or ISA over a few years, as I don’t need to spend it.

Where is it invested now (ie within the pension pot)? It's not the pension itself which delivers the return; it's the funds you choose within the pension fund.

DRS1

People asking about SIPPs tend to get referred to this

Broker comparison: cheap investment platforms UK

But I confess it confuses me.

@Marcon came up with this on another thread

Compare Our Best Personal Pension Plan August | money.co.uk

By the way on point 4)

"4)     But, for one or two years, I would like to contribute £2,500 to the pension and take advantage of the governments £750 top-up scheme."

I am not sure what this £750 top up scheme is.  If you mean the tax relief claimed by the pension when you do "relief at source" contributions then a contribution (net) of £2500 would get tax relief of £625 to give a total in the pension of £3125.

bjorn_toby_wilde

Zoho said:

4)     But, for one or two years, I would like to contribute £2,500 to the pension and take advantage of the governments £750 top-up scheme.

I think you may mean £2880 to get £3600.  It’s not really a £750 top up scheme. £3600 gross is the most you can contribute if you have no other earned income. The £2880 is £3600 less 20% tax so the “top up” is £720.

Cobbler_tone

bjorn_toby_wilde said:

Zoho said:

4)     But, for one or two years, I would like to contribute £2,500 to the pension and take advantage of the governments £750 top-up scheme.

I think you may mean £2880 to get £3600.  It’s not really a £750 top up scheme. £3600 gross is the most you can contribute if you have no other earned income. The £2880 is £3600 less 20% tax so the “top up” is £720.

This is something I will face soon and a new world for me. If the only DC product you have is for drawdown, can you generally use this product to pay in £2,880 and get the tax relief added automatically?

SVaz

You are concentrating on the small stuff and have ignored the most important thing -  that is what your pension is / will be actually invested in.    

The provider doesn’t choose the fund/s , you do.   

You will also need a certain amount left in cash to provide you with the income you want.

Rather than pulling the whole 25% tfls out,  you will likely get ‘more’ out ( in the long run) by using UFPLS once a year to the tune of £ 3400,  of which £2550 uses your remaining tax free allowance and £ 850 is your 25% tfls -  this is assuming your DB pension pays exactly £10k. 

So you could keep around £15k in cash or a short term money market fund within your pension to give you 5 years of income,  then you will still have a nice amount of tax free cash to take once you hit State pension . 

If you use an income fund/funds for the rest of your pension then it will automatically top up your cash reserves.