Tiny lumpsum and pension options?

oldman_3

I am 59 and semi retired with a small income from a home internet company.

Many years ago I started a private pension plan but within a few years I joined a company with their own plan and government restrictions meant I had to stop the private plan and join the company one. This company made me redundent within a few years and circumstances meant I hadnt the means to restart the private plan again.

I want to take a lumpsum from the private pension plan now, the fund is only worth £16800.00 which gives me £4200.00 now and a possible pension payment of £769/year max or lesser amounts with a guarantee period or less still with my wife getting a pension payment, then there is a 3% option as well.

With the amounts being so small I really do want to get as much out of this as possible so any advice on which annuity payment to choose would be gratefully received.

Some further info that may influence the choice, my wife is 12yrs younger and although I think I should live for ever I am a smoker and was in my 20's heavily involved with Asbestos so am a bad risk for a 20+ year plan!

Oh and I already seem to have a bill for £300+ just for asking for the pension detail from the broker who held my Zurich pension plan details

EdInvestor

Does this pension fund have any protected rights (contracted out) money in it?

If it doesn;t then an alternative might be to transfer it to a low cost online SIPP, take the tax free cash and then invest the rest, while drawing an income. This is called "income drawdown."You can take 120% of the annuity rate, and if you die before age 75, the fund will be returned to your widow minus a 35% tax charge - or she can keep going with the drawdown.

Keeping the fund invested gives the opportunity for future growth to keep up with inflation, but also carries the risk of loss, and a smaller income , this is why it's important to keep charges as low as possible.

Here are some low cost providers you could check out:

https://www.sippdeal.co.uk
https://www.h-l.co.uk
https://www.alliancetrust.co.uk

It's quite easy to handle the transfer yourself, no need to pay an IFA.

Just one point about the existing pension: if it is invested in a with-profits fund, does it have a guaranteed annuity rate attached with a higher rate than is now the norm?
It's not unheard for IFAs to fail to notice such GARs and it's very common for insurance companies to "overlook" them as well.

dunstonh

It's not unheard for IFAs to fail to notice such GARs and it's very common for insurance companies to "overlook" them as well.

It's quite hard to miss guaranteed annuity rates. I'm not sure why you have that opinion. After all, you ask the question are there guaranteed annuity rates and if so when do they apply and you ask for a range of income options. Sure, it is possible that you may not get the right data but then the liability then exists to either protect the adviser or the consumer. DIY though and miss it and you have no come back.

It's quite easy to handle the transfer yourself, no need to pay an IFA.

Ed is recommending what is classed as a high risk transaction by the FSA. It may be suitable but it may not. However, as Ed is telling you to do a high risk transaction and do it yourself so you have no FOS protection then its only fair that I point this out to you.

It's quite easy to handle the transfer yourself, no need to pay an IFA.

No its not. If you know the subject it is easier but if you have no investment experience you can make a right pigs ear of it. You have to be willing to put time and effort into learning about it. If you are willing to spend that time then fair enough but it is not easy for a novice to get it right without that.

Oh and I already seem to have a bill for £300+ just for asking for the pension detail from the broker who held my Zurich pension plan details

Is it an IFA or a Zurich rep (or ex Dunbar rep)?

To be honest, if the fee is £300 but done on no commission (rebated to improve terms) then its probably worth it. It isnt worth it to an adviser to do this on commission basis as it will pay them around £100.

Some further info that may influence the choice, my wife is 12yrs younger and although I think I should live for ever I am a smoker and was in my 20's heavily involved with Asbestos so am a bad risk for a 20+ year plan!

Thats quite important as you are looking at enhanced annuities due to smoking and possibly health and the best of these companies will only transact via an IFA. They will not deal direct with the public.

oldman_3

EdInvestor wrote: »

Does this pension fund have any protected rights (contracted out) money in it?

No.

I had a brief look at the SIPP but as a complete novice at any sort of investment project I wonder if I can manage this without burning my fingers.

Just one point about the existing pension: if it is invested in a with-profits fund, does it have a guaranteed annuity rate attached with a higher rate than is now the norm?

I dont have a clue, it was originally a Hambro life "Growth retirement plan" invested in hambro pension managed fund. Somehow along the years it ended up being a Zurich plan.
The options I have been given are: Pension without tax free cash, pension with max tax free cash, pension with another insurer (OMO), income drawdown plan.

Thanks for the info you have given.

EdInvestor

OK, no problem with the GAR or PR then then. The smoker's annuity would be worth checking out but the IFAs have a monopoly on this area so yet again you're incurring costs for what is only a small fund. BTW what's your other retirement provision/state pensions like? Obviously with a small fund, taking a risk may not be too much of a problem if it represents only a small part of your likely income..

It's true that you need to put some time and effort into learning about investment for drawdown , but that's only what anyone with a pension or ISA has to do today and if you're retired you've got the time.There's plenty of helpful people around and if you want to take your time about it you can just leave the money sitting in the SIPP's cash fund earning interest (or in safe gilts, also earning interest) while you look into the options.

If you only really want tthe lump sum at this point, you can leave the rest to grow without taking any income at all.The point about the SIPP is that it leaves your options open.An annuity fixes them for life at a young age, and you lose the capital which is especially unhelpful for a much younger wife.

oldman_3

So its possible to take the lump sum now and leave the rest where it is earning interest in its fund? I really dont need the pension now as I am still earning, but I would like the lump sum. The pension maximum amount available to me now less the lump sum is so small at £769/yr its not even going to pay the council tax!
The other end of the scale is take it with 3% yearly growth, 100% spouses pension and a 10yr Guarantee period giving £342/yr so you see the amounts are very small.
I guess another £300 fee would be payable if I left it where it is for maybe another 6yrs.
I suppose its me just not wanting to let some insurance company make a big profit out of my small pot but I really would like to get as much back one way or another.

EdInvestor

oldman wrote: »

So its possible to take the lump sum now and leave the rest where it is earning interest in its fund? I really dont need the pension now as I am still earning, but I would like the lump sum.

Indeed. Procedure is

1.Open SIPP account
2.Instruct insurance company to transfer pension to SIPP
3.On arrival of funds, instruct SIPP to pay out tax free cash and put rest of the money into income drawdown
4.Invest money ( ie choose and purchase funds, or shares, or gilts, or leave in cash to earn interest.

The fees for all these actions are listed on the providers' websites.

If you think you might keep most of the money in cash, then Sippdeal has the highest interest rates, though none of them match the best bank accounts. IMHO you should put at least some of the money in unit trusts or directly into shares (cheaper) - especially ones that pay dividends.

oldman_3

Thanks both for the replies.

Am I able to take the lump sum now and leave the rest in the Zurich plan without actioning any pension options and let it grow there for say another 6yrs.
If so what would the projected value of the fund grow to (ball park figure) ?

dunstonh

If you have a cautious portfolio then use 5% as benchmark. It medium risk use 7%, if high risk use 9%.

You may get more or less than these but they are realistic benchmarks.

oldman_3

oldman wrote: »

Thanks both for the replies.

Am I allowed to take the lump sum now and leave the rest in the Zurich plan without actioning any pension options and let it grow there for say another 6yrs.
?

Thanks, can you say if I am able to do the above though?

EdInvestor

oldman wrote: »

Thanks, can you say if I am able to do the above though?

No, that would be far too easy, this is a pension, remember

You have to "take benefits" - either via an annuity or income drawdown in order to get hold of the lump sum.This has always been possible for anyone over 50.

What's changed since 2006 is that you can now take 'nil' income from a drawdown plan: formerly you were forced to take a minimum level of income, not as much as with an annuity, but enough to deter most people, mainly due to tax.