To take or postpone personal pension

tejer

I retired a little over 5 years ago and have a pension from my professional work. I now also have my state pension.
I have a small number of personal pension plans but don't need additional income at present.
These plans have matured and up until now I have postponed them annually on the basis that I don't need the money yet and my IFA advises me that they remain outside my estate and IHT liability unless or until I take an annuity.

The largest plan holder has contacted me again as my (new) 'retirement date' is once again imminent. Am I doing the right thing? I have read that there are disadvantages to postponement. Does my IFA have a vested interst (commission?) in postponement?
Advice would be much appreciated
tejer

wombat42_2

You could compromise by taking the 25% tax free lump sum now and leave the rest going for a few years.

dunstonh

Does my IFA have a vested interst (commission?) in postponement?

Only Sipps or hybrid sipps tend to pay fund based trail. Legacy pensions (pre 2001) mostly pay on contributions paid in rather than fund value. So, there is unlikely to be a financial interest. Indeed, the IFA would be paid if you did commence an annuity. So, really it is unfair to accuse them of this.

The general rule of thumb is that if you dont need the pension or the lump sum dont take it. Its currently sitting in a tax free environment and is outside of your estate. The death benefits are higher pre commencement as well. If you commence it or take the 25% TFC then you will reduce death benfits and bring the pension into a taxable environment.

tejer

dunstonh wrote: »

Only Sipps or hybrid sipps tend to pay fund based trail. Legacy pensions (pre 2001) mostly pay on contributions paid in rather than fund value. So, there is unlikely to be a financial interest. Indeed, the IFA would be paid if you did commence an annuity. So, really it is unfair to accuse them of this.

The general rule of thumb is that if you dont need the pension or the lump sum dont take it. Its currently sitting in a tax free environment and is outside of your estate. The death benefits are higher pre commencement as well. If you commence it or take the 25% TFC then you will reduce death benfits and bring the pension into a taxable environment.

Thank you dunstonh.
I wasn't accusing him actually, the thought just crossed my mind today. (Nearly got caught once before by a tied advisor - I declined his advise to cash in all my policies before maturity and take out one new replacement one. He was subsequently jailed.)

The advise to postpone sounds sensible, but I also read in a newspaper advise page that postponing an annuity could be unwise as the shorter time it would pay out was not likely to be equalled by it's growth over the period of postponement.
I have to respond quite soon to the pension provider. Thank you for your advice.
tejer

dunstonh

Nearly got caught once before by a tied advisor - I declined his advise to cash in all my policies before maturity and take out one new replacement one. He was subsequently jailed.)

I prefer the term tied rep. Looks like the FSA is finally realising this and tied reps may no longer be able to use the term adviser when the FSAs RDR consultation is complete. There are times that changing products is good but a tied rep is rarely authorised to do it and yet they do it far too frequently.

I also read in a newspaper advise page that postponing an annuity could be unwise as the shorter time it would pay out was not likely to be equalled by it's growth over the period of postponement.

Potentially correct. Knowing your date of death would make financial planning so much easier It really depends a lot on your health, financial position and your long term plans. Death benefits are the biggest loss to you if you commence. At the moment, if you die the whole value of the fund is paid tax free to your nominated beneficiary. Once you commence that pension, if annuity, then it would depend on the terms of the annuity but most people go with a 5 or 10 year guarantee. If drawdown, the fund would be taxed at 35% before its paid to beneficiary.

Annuity rates go up each year and if your investments are well invested, then you expect them to go up on average by more than a savings account. So the growth obtained and the higher annuity rate or drawdown rate could be more beneficial. Also, your tax position comes into play. If you take the income will you lose 22% of it in tax. Will it take you over £20,900 income and you lose the age allowance or will you even pay 40% tax on it.

tejer

dunstonh wrote: »

Potentially correct. Knowing your date of death would make financial planning so much easier It really depends a lot on your health, financial position and your long term plans.
snip snip
Also, your tax position comes into play. If you take the income will you lose 22% of it in tax. Will it take you over £20,900 income and you lose the age allowance or will you even pay 40% tax on it.

Health - OK as far as I know (i.e. none of us do)
Financial position - healthy
Long term plans - to keep breathing as long as poss :j


Ah yes, the tax is the killer isn't it. Nuff said
thanks again.
tejer