How To Prepare For Retirement?

llangefniboy

Can any of you experts advise, please?

I have 2 years to go to 60 when I shall be able to take my preserved Civil Service pension of around £18k pa and lump sum of £54k.

I have 2 AVC funds:

- Scottish Widows WP fund worth around £40k

- Standard Life unit-linked fund worth around £40k

I had thought of amalgamating the two AVC funds when seeking an open market conventional annuity but have seen a lot of interest in SIPPs here. What are the pros & cons?

Is it worth seeking advice from an IFA and should I do it now rather than at 60? What are the likely charges and how could I mitigate them?

Many thanks!

EdInvestor

llangefniboy wrote: »

- Scottish Widows WP fund worth around £40k

Step one is to check whether this fund attracts a high Guaranteed Annuity Rate (many SW policies do) and what are the terms attached. This could be a valuable policy which shouldn;t be disturbed.

I had thought of amalgamating the two AVC funds when seeking an open market conventional annuity but have seen a lot of interest in SIPPs here. What are the pros & cons?

I assume you mean you are considering income drawdown within a SIPP?

More info on this and other specialist annuity websites:

https://www.williamburrows.co.uk

Although a higher risk option, for anyone with a very stable index linked mainstream pension income like you, it would be worth considering for a smaller additional fund as it offers the possibly of beating inflation long term.Most of the capital can be left to a spouse in cash.

Costs need not be high, especially if you go the self investment route with a low cost provider.

dunstonh

If you dont use an IFA then the commission that would be generated on annuity purchase will be kept by the providers. So, its logical to use an IFA as it is effectively a nil cost option. The IFA can check open market against your current plans, do all the paperwork and will be paid regardless.

Are the AVCs free standing or attached to the occ scheme?

Another consideration is your savings and investments. You are going to be very close to the age allowance reduction income level so you may need to make sure that your savings/investments are in the right tax wrappers. You have 7 years before the age allowance kicks in so early planning can save you money.

llangefniboy

Thanks both of you.

I asked SW what guarantees came with the AVC: they said that there would be no MVA at 60.

The AVCs are attached to the occupational scheme.

I use ISAs and other tax exempt products as much as possible & plan to move income-bearing assets into my wife's name once AA becomes relevant.

On such a comparatively small combined AVC fund, would income drawdown be disproportionally expensive? I'm all for an easy life and if there's more work & worry involved in a SIPP then opting for an annuity may be preferable.

EdInvestor

llangefniboy wrote: »

I asked SW what guarantees came with the AVC: they said that there would be no MVA at 60.

Not the same thing.Pin them down.Does it have a Guaranteed Annuity Rate (GAR) and if so what are the details of it. (I have heard of several cases where SW investors have lost their GARs because they weren't aware they had them and SW allowed the NRD to pass without telling them, thus they invalidated the guarantees by deferring the pensions in ignorance.Disgraceful behaviour by SW. )

On such a comparatively small combined AVC fund, would income drawdown be disproportionally expensive? I'm all for an easy life and if there's more work & worry involved in a SIPP then opting for an annuity may be preferable.

Need not be but there is more work involved at least initially.As for worry, that's a very personal thing.

llangefniboy

EdInvestor wrote: »

Does it have a Guaranteed Annuity Rate (GAR)

Unfortunately not, though the MVA guarantee extends for a "Retirement Decade" between 60 and 70.

llangefniboy

Spoke to Hargreaves Lansdown about the possibility of transferring my AVC funds into a SIPP in order that I can take advantage of income drawdown. They tell me I am obliged to seek advice that is likely to cost in the region of £500 first. Any way to mitigate or get round this?

dunstonh

llangefniboy wrote: »

Spoke to Hargreaves Lansdown about the possibility of transferring my AVC funds into a SIPP in order that I can take advantage of income drawdown. They tell me I am obliged to seek advice that is likely to cost in the region of £500 first. Any way to mitigate or get round this?

The transfer of occupational pensions to personal schemes is considered as a high risk transaction. AVCs are considered as occupational schemes due to the potential for enhancing the benefits of the main scheme.

Many providers have insisted on IFAs being used when an occupational pension is involved. However, the numbers seem to have increased in the last 6 or so months after the FSA made the following press release:

"We wish to stress to firms our belief that it is very difficult to make a direct offer financial promotion for a DB pension transfer that is fair, clear and not misleading and meets the FSA's other rules (including COBS 4.5.2). Such a decision is likely to be too complex for a consumer without specialist knowledge to make and it will be very difficult for a financial promotion to fully explain the risks. The FSA reminds firms that in reviewing such financial promotions, the FSA will start from the presumption that such transfers are not suitable. The FSA will enhance its supervisory scrutiny of these activities and enforcement action will be considered where appropriate."

So, if your AVC is linked to a defined benefit scheme (which it probably is), the firms can now be liable for doing the wrong thing even if they havent given advice. That is too much of a risk.