Income drawdown vs annuity purchase at retirement

rebdog

I am 59 and I am 3 months away from nominated retirement age, with a with profits policy with Friends Provident. It's an old policy and mainly I contribute to another pension scheme. I'm still putting £20 per month into FP.

I'm unhappy about their performance. Also, I intend to work for at least another 5 years. Can I transfer out without penalty when I reach 60 and reinvest with another provider? With profits holders of FP pensions have had MVR applied reducing pay outs by about 20%, it seems. How is this applied to personal pensions- and is it something I should be wary of when / if transferring out?

Advice very welcome

dunstonh

Can I transfer out without penalty when I reach 60 and reinvest with another provider?

Depends on the terms of the contract.

How is this applied to personal pensions

They reduce the transfer value.

and is it something I should be wary of when / if transferring out?

yes.

Advice very welcome

For future posts, you should start a new thread on a new subject. Your questions have nothing to do with the topic you have posted to. Generally this is referred to as thread hijacking and considered unfair on the others as it takes thread off subject.

Also, you will not get advice here. The board is not authorised and regulated to give advice. Its just discussion and debate when it comes to regulated products.

There are other things to look out for with old plans. Guaranteed minimum maturity values, guaranteed annuity rates, choice of funds, charges, protected lump sums and more. Dont assume that your return is bad. Unless you know the options you have and the period you are measuring it against it may be better than you think.

whiteflag_3

rebdog wrote: »

I am 59 and I am 3 months away from nominated retirement age, with a with profits policy with Friends Provident. It's an old policy and mainly I contribute to another pension scheme. I'm still putting £20 per month into FP.

I'm unhappy about their performance. Also, I intend to work for at least another 5 years. Can I transfer out without penalty when I reach 60 and reinvest with another provider? With profits holders of FP pensions have had MVR applied reducing pay outs by about 20%, it seems. How is this applied to personal pensions- and is it something I should be wary of when / if transferring out?

Advice very welcome

If 60 is the normal retirement date on the plan, an MVR will not apply at that time.

There could be guaranteed annuity rates applying to the plan which MIGHT be valuable.

As there are many, many options available to you I suggest it would be sensible to seek advice from a fee based financial planner.

EdInvestor

whiteflag wrote: »

If 60 is the normal retirement date on the plan, an MVR will not apply at that time.

It should not apply, but, and this brings the query back on topic, if you attempt to take beneftits at the normal retirement date on the contract by using income drawdown, at some lifecos (eg Standard Life) they will deem this to be an MVR issue.Only if you take an annuity can you avoid the MVR.

So you should ask FP about their policy on this matter.

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whiteflag_3

EdInvestor wrote: »

It should not apply, but, and this brings the query back on topic, if you attempt to take beneftits at the normal retirement date on the contract by using income drawdown, at some lifecos (eg Standard Life) they will deem this to be an MVR issue.Only if you take an annuity can you avoid the MVR.

So you should ask FP about their policy on this matter.

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true

however I have had problems the FP lately giving incorrect info over the phone

thats why I recommend getting good advice

stevetodd

yourpensionblog wrote: »

I think that the annuities market is dead, as people now have more control over their assets - even after retirement.

While there may be more risk by managing your own post-retirement investments, compared to the low annuity rates on offer, I think it is a risk worth taking.

Hi, I am 51 years old and haven't really got a decent pension to speak of, although I do not anticipate any financial hardship ahead. The reason I have never invested in pensions (other than a tiny one back in my 20's) was that I thought that I could do a lot better myself (which I think I have done).

However now that I am 51, I am wondering if it might be a good investment to say pay some money into a pension to get the 40% tax relief, then take the 25% cash out in 4 years time and rather than buy an annuity go for income drawdown.

I do not like the look of annuities and that was why I never really invested in pensions, I must admit I did not know there was an alternative to an annuity until 5 mins ago, and as ATM do not full understand them (but plan to start reseaching now)

jamesd

Yes, it's probably a good idea to get the tax relief and that relief also means that pensions are the most efficient investment for producing income.

For another couple of years you can take the lump sum at age 50 or over, before it changes to 55. So you could put in a chunk of money now and claim the higher rate tax relief on this year's tax return. The basic rate relief will be added to your contribution inside the pension about a month after it's made.

You can only take the lump sum once for each chunk of pension so you'd need a different pension for the next set of contributions. That can be with the same pension provider if you like. All of the pots that have had the 25% taken can be merged (if the provider allows that).

If you don't mind investment risk the higher rate tax relief followed by using the lump sum to pay off all or part of a mortgage is a very tax-efficient way to both clear the mortgage and produce pension income.

Nomad25

I've read everything I can, my eyeballs are now well crossed! and I have a question for you gurus - which is generally more advisable?

Sell [no kids/just me and OH ] my house eventually, buy somewhere smaller and purchase an annuity with the cash left over [can I do this? all the information I've read seems to only seems to refer to pension pot cash],

or,

stay put and go into one of the more reputable equity release plans?

Which option would be beneficial to explore even further?

Apologies in advance for what probably seem really dumb questions.

dunstonh

Which option would be beneficial to explore even further?

Part of your problem here is that its not just financial issues you have to consider but the personal side of things. Do you want to move house and downscale (which is harder than most people realise)?

buy somewhere smaller and purchase an annuity with the cash left over [can I do this? all the information I've read seems to only seems to refer to pension pot cash],

You can do it with or without a pension. You can also do it in stages (use up your pension contribution allowance each year in retirement for example) and use ISAs as well as a combination and consider things like purchased life annuities or some of the guaranteed income options which guarantee to pay 5% net for life regardless of capital (but can return some or all or more of the capital on death depending on the pot left).

Which is advisable really depends on you and the amounts involved and what you want.

EdInvestor

Nomad25 wrote: »

Sell [no kids/just me and OH ] my house eventually, buy somewhere smaller and purchase an annuity with the cash left over or stay put and go into one of the more reputable equity release plans?

The former option will be the most profitable for you, assuming that the housing market returns to some level of stability. A "purchased life annuity" can be bought with non-pension cash and has significant tax advantages over a pension annuity.

Of course you could also leave some or all of the capital invested to provide a rising income - the problem with annuities is that level ones get overtaken by inflation and the index linked ones are seen as poor value for money. Plus you lose the capital of course.