Is it wise to buy annuity now and continue to pay into pension pot

AERobson

Hello, I'm 55 and have a pension pot of £60,000 I was wondering if it would be better to use ALL the pot to buy an annuity now, then use the mothly annuity income to pay into a new pension pot with the view to buying another annuity in the future….

OR take 25% tax free (£15,000) and buy an annuity with the remaining £45,0000, and use the annuity income and the interest from the lump sum to pay into a new pension pot.

The reason for considering these options is that although I am currently working part time on a zero hours contract, I find myself now having to be financially independent and thought I could use the annuity/lump sum money as a sizeable contrubition to my household bills etc in the event I couldn't workdue to illness etc but in the meantime I could use the income to pay into a new pension so keep saving for the future.

Thanks for your guidance and opinions :-)

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/6663153/is-it-wise-to-buy-annuity-now-and-continue-to-pay-into-pension-pot

A £60k pension pot won't buy a particularly large annuity.

Will you have sufficient earned income to still make payment into pension?

AERobson

https://forums.moneysavingexpert.com/discussion/comment/81953783#Comment_81953783

Yes I will (hopefully), and I don't need the monthly annuity payment money so I planned to pay that into the pot too. Does that sound like a reasonable idea?

Grumpy_chap

Your maximum gross pension contribution is limited to earned income.

I think you will also be limited to the MPAA

QrizB

If you're in good health, £60k will buy you an index-linked annuity of around £2400 pa. That's not much of a hedge against unemployment.

I'd think you're likely to be better off not buying an annuity at this stage.

Do you have an emergency fund in eg. a cash ISA? Enough to bridge any likely gaps in your employment? Or any other savings?

FIREDreamer

https://forums.moneysavingexpert.com/discussion/comment/81953906#Comment_81953906

NO!!!

Buying an annuity does NOT invoke the MPAA!

WitsEnd101

I was wondering if it would be better to use ALL the pot to buy an annuity now, then use the mothly annuity income to pay into a new pension pot

Just wondering if HMRC would consider this recycling?

dunstonh

https://forums.moneysavingexpert.com/discussion/comment/81954478#Comment_81954478

It would trigger the flow chart check.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/comment/81954428#Comment_81954428

Thank you.

What an odd exclusion to the rules!

Marcon

https://forums.moneysavingexpert.com/discussion/comment/81954478#Comment_81954478

No. OP has said they would use the whole of their DC pot to buy an annuity, so by definition they wouldn't have taken any tax free cash - so no danger of recycling taking place.

DRS1

Unless they go the alternate route and take a £15k TFLS.