Income drawdown vs annuity purchase at retirement

graybosiddley

I retired early at sixty with two pensions one a draw down pension I am single and was happy with everything I had done, the income I was receiving was sufficient for my needs. Now it seems that due to government legislation my Drawdown Pension will be cut 50% plus and will be now taxed at 55% instead of 35% when I die. The lump sum on my death was to be shared equally between my children. Knowing that my children would at least get a little something on my death. Now the death benefit sum (remaining pension pot on death) from drawdown will be 20% lighter due to the present incumbents changes. I wrote to the Prime minister and got a letter from his advisors this said nothing of use to me, also I sent the same letter to my local MP who did not even bother to reply. The stupid thing is that whilst I have done my best (invested in pensions) to not be a burden on the state in retirement I will
(unless I get a job at (63.5 years) I will be on benefits until I reach 65. I think personally annuities should be scrapped and drawdown be the norm subject to some rule changes for the higher earners and bigger pots. Oh and charges should be standardised. I would like to knowHow do other drawdown holders feel?

dunstonh

Now it seems that due to government legislation my Drawdown Pension will be cut 50% plus and will be now taxed at 55% instead of 35% when I die.

Not sure where you get the cut of 50% from. I can only think that your fund has gone down and you were drawing 120% rather than 100% or lower.

The taxation has gone from 35% to 55% for under 75s but you no longer have annuity compulsion at 75 and ASP has gone which had a higher tax rate and a lower drawdown rate.

Now the death benefit sum (remaining pension pot on death) from drawdown will be 20% lighter due to the present incumbents changes.

Do you know that you will die before age 75? It seems you do from your comments. However, if you were to die after 75, you would be better off.

I think personally annuities should be scrapped and drawdown be the norm subject to some rule changes for the higher earners and bigger pots.

That is just daft and doesnt take into account people who require a guaranteed income on death.

Oh and charges should be standardised.

They largely are within the law of land which prevents pricing cartels.

smiler2

If you have 20k pa (including state pension @ 65) then you can convert your drawdown to a flexible drawdown and take what income you like, that may help.
Refer TPAS Q&A section here:
http://www.pensionsadvisoryservice.org.uk/annuities-and-income-drawdown/flexible-drawdown

Money_Saving_Dude

dunstonh wrote: »

However, if you were to die after 75, you would be better off.

Made me smile.

atush

So, I guess annuities are better than drawdown if you haven't made other investments in your lifetime and can only live on the 120% of GAD or even 100%GAD limits?

If you were sailing that close to the wind with your drawdown, I am thinking it wasn't the right choice for you due to the size of your fund.

jamesd

Not really. The 25% tax free lump sum can play a role because it is a buffer outside the pension that won't be regulated by the GAD limit. Starting drawdown as soon as possible and investing the money outside the pension can be useful. Or into another pension to get another lump sum.

Pimperne1

Guys, my first (but not my last) post on this part of the forum and please forgive my completely novice status.

Recently I paid off a mortgage on a property that is worth circa £170k. I have been renting it out but was seriously dischuffed that I was paying a mortgage SVR of around 6% and only getting around 3% for my savings (which, as far as the outstanding mortgage is concerned was £100k).

The place now brings in £9.5k a year (and I charge a rent below the local rate).

In simple terms, why wouldn't someone who had, say, £170k in a pension fund not consider buying a property to let out and thereby benefit from more than you can get from an annuity (I am 56), avoid drawing down from your pension fund and eventually see the benefits of House Price Inflation.

I honestly know nothing about private pensions as I don't have one but was just wondering what was wrong with this proposal (apart from the fact that you may not wish to be a landlord).

atush

First of all, you cannot buy residential property in a pension.

Some Sipps can hold commercial property though.

Second, if you held a commerical property you would have to charge the normal rent expected of such a property, you wouldnm't be able to rent for less than market value as you are currently doing.

Third is the eggs all in one basket approach. anyone who had done this in say, 2006, would be sitting on a pretty big loss by now.

You have been lucky with your property so far, but there are other problems such as void periods, maintenence/repairs, vandalism/squatters etc to worry about.

fairleads

atush wrote: »

Second, if you held a commerical property you would have to charge the normal rent expected of such a property, you wouldnm't be able to rent for less than market value as you are currently doing.

Maybe in a communist state, but not elswhere.

Pimperne1

atush wrote: »

First of all, you cannot buy residential property in a pension.

Some Sipps can hold commercial property though.

Second, if you held a commerical property you would have to charge the normal rent expected of such a property, you wouldnm't be able to rent for less than market value as you are currently doing.

Third is the eggs all in one basket approach. anyone who had done this in say, 2006, would be sitting on a pretty big loss by now.

You have been lucky with your property so far, but there are other problems such as void periods, maintenence/repairs, vandalism/squatters etc to worry about.

I'm not saying it should be your pension but I thought you could now draw down funds instead of buying an annuity (which I remember hearing were pretty useless anyway). So, can you take a lump sum and invest it elsewhere? If you can then my question remains - why not take £170k out of your mortgage and buy a property to rent out?