Annuity at 55?

gabby71

Afternoon all! I turn 55 early next year and have a 45k pension pot from an old employer.
I will have a decent pension from my current workplace when I retire at 67, however at the moment i'm not exactly 'comfortable' money wise - I have a reasonably decent salary but am single so all mortgage/bills etc are paid by me - i'm considering cashing in the 45k pot and having 25% tax free (to get new windows & doors etc) and using the remainder to purchase a 10 year annuity to give me some additional disposable income each month so I can enjoy my free time a bit more while i'm still relatively young 
Could anyone give me any idea of possible pitfalls of doing this? and is there any way to calculate roughly how much I would receive monthly if I bought an annuity? the pension is with Scottish Widows - would it be best to purchase the annuity through them? is there any way of comparing annuities or do they all work out roughly the same?
many thanks
Gab

DE_612183

may be better just to do draw down so you can take as much or as little as you need..

QrizB

gabby71 said:

Could anyone give me any idea of possible pitfalls of doing this? and is there any way to calculate roughly how much I would receive monthly if I bought an annuity?

Taking a fixed-term annuity (or drawdown) would make you subject to the Money Purchase Annual Allowance, limiting your tax-relievable pension contributions to £10k pa for the rest of your life.

Depending on your current employment and pension arrangements, this might be inconvenient.

As for the annuity, you'd need to get a quote but £36k might pay out £4-5k per year for ten years.

gabby71

QrizB said:

gabby71 said:

Could anyone give me any idea of possible pitfalls of doing this? and is there any way to calculate roughly how much I would receive monthly if I bought an annuity?

Taking a fixed-term annuity (or drawdown) would make you subject to the Money Purchase Annual Allowance, limiting your tax-relievable pension contributions to £10k pa for the rest of your life.

Depending on your current employment and pension arrangements, this might be inconvenient.

As for the annuity, you'd need to get a quote but £36k might pay out £4-5k per year for ten years.

Thanks for responding I apologise but I know nothing about the Money Purchase Annual Allowance or tax-relievable pension contributions - could you point me in the right direction where I could read up on this? many thanks

kempiejon

The MPAA and how small pots work was a handy revelation to me. A handy piece of learning. You do know how to search? Here's a view supported the wokerati !!!!!! in power. https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

af1963

You can see generic 'best buy' rates in various places e.g.:
https://www.hl.co.uk/retirement/annuities/best-buy-rates
  
These are for lifetime annuities which pay out till you die.

If you need the extra income in the next few years but will need less later because other pensions are available, you could also look at fixed term annuities.  Or you could buy a lifetime annuity which does not increase with inflation -  paying out a higher starting rate, but its value will gradually be eroded by rising prices.

You can get personalised quotes.  HL will do those, or other providers like Retirement Line. The rates don't work out the same from all companies - at different times, some companies will have better rates than others for your requirements, so it's worth getting quotes.

The main "potential pitfall" is that anything you spend now, you won't have available later.  Whether that matters or not depends on your own circumstances.  

You might also pay more tax by taking the annuity income on top of your salary, especially if it pushes your total income into a higher tax band. 

Albermarle

gabby71 said:

QrizB said:

gabby71 said:

Could anyone give me any idea of possible pitfalls of doing this? and is there any way to calculate roughly how much I would receive monthly if I bought an annuity?

Taking a fixed-term annuity (or drawdown) would make you subject to the Money Purchase Annual Allowance, limiting your tax-relievable pension contributions to £10k pa for the rest of your life.

Depending on your current employment and pension arrangements, this might be inconvenient.

As for the annuity, you'd need to get a quote but £36k might pay out £4-5k per year for ten years.

Thanks for responding I apologise but I know nothing about the Money Purchase Annual Allowance or tax-relievable pension contributions - could you point me in the right direction where I could read up on this? many thanks

The MPAA restricts how much you can add to a pension going forward.
If you tell us how much you are adding to your workplace pension and how much your employer is adding, then we can give you an idea of whether the MPAA is likely to cause you any issues in future , or not.

gabby71

Thank you everyone for your input and advice! It’s been really helpful!
@Albermarle I currently have around 180k in the pension pot with my current employer and around 8.5k going in every year (made up of my own contributions plus employer contributions)

DeLaSole

If you maintained today's value of your contribution going forward (ie. increasing it simply in line with inflation, not with any pay rises etc.), you might be at the current MPAA (£10k, but was previously reduced to £4k not too long ago!) in 5 years or so. This all assumes 3% inflation pa, which itself might turn out to be a low estimate. So the possible effect of triggering it is certainly worth understanding.

Best wishes.