Good time to cash pensions in or is it best to wait?

masonj3

Hi

Im after peoples individual thoughts /ideas based on the following circumstances:-

Wife aged 54 working part time and claiming carers allowance, earning £135 per week after tax, Husband 62 retired and in receipt of disability living allowance and incapacity benefits all at long term / indefinite rates.

They own their own home and have approx 7k in savings and no mortgage.

Between them they have 3 private pension plans, Wifes valued at 78k, husbands valued at 138k & 35k.All 3 linked to stock and shares etc

At the moment they do not need the income from the pension plans but wondered whether it would be a good idea to cash some of them or all of them in at the moment and for the wife to give up work and simply put the money away into high rate savings accounts or similar each month OR if they should leave them as they are for as long as possible??

Just wondered what advice would be offered based on the current "credit crunch crisis" stock market, rates etc, just simply gauging peoples opinions for now

Thanks x

dunstonh

wondered whether it would be a good idea to cash some of them or all of them in at the moment

You cannot cash in a pension. THe most they can take is 25% tax free but the rest remains invested or is required to pay an income.

nd for the wife to give up work and simply put the money away into high rate savings accounts or similar each month

The pension is tax free. Once it has been crystallised (commenced) then it ceases to be tax free in a number of areas.

OR if they should leave them as they are for as long as possible??

It would maintain its tax free status and if annuity purchase is the intention, then the annuity rate goes up each year.

Just wondered what advice would be offered based on the current "credit crunch crisis" stock market, rates etc, just simply gauging peoples opinions for now

A pension is just a tax wrapper. It doesnt make or lose money and market conditions have no impact on it. The investments within the pension do that. They can range from cash, fixed interest funds, property and stockmarket. You can also get guaranteed options. So you just make sure your investments suit your risk profile. Currently, it sounds like you are invested above your risk profile so a fund switch may be needed.

It can still be beneficial for some to take the benefits early but its usually a case of what annuity rates you can get now and in the future, if income drawdown would be used, what benefits may be lost by commencing the pension, tax, personal savings and investments, health and if the money is needed or not (amongst other things).

masonj3

Thanks for that dunstonh - i find this area really confusing at times so really appreciate having you experts around lol

Ok, I think I understand now that at the moment we could take the 25%tax free sums and either do nothing with the remainder of the funds or purchase an annuity with it and start to receive a regular but taxable income.

Also have an understanding about guaranteed periods , wasnt sure by what you meant about a funds switch {sorry prob being thick here} ??

The thing we cannot decide on at the moment is whether now is a good time to take one/ some / all or none of the pensions and start to receive a regular income, it would be nice to finish work and spend more time with hubby but I do only work two days per week so isnt essential, we dont need the income either at the moment but could always make use of extra money or simply put it into somthing like an ISA.

I guess we are wondering if now is the time for us or should we wait and see how our plans grow, is there ever a "good time" to take your pension, if so how would we know?

Would be interested to hear peoples opinions as to what they would do if in our position to give us some food for thought.

Thanks x

EdInvestor

Would you be asking this question if we didn't have the the credit crunch/stockmarket volatility?If not, suggest you do nothing. These problems will not last forever and there is no need to react to them by taking benefits.Given the husband is disabled and the wife is much younger, she in particular would potentially lose quite a lot if this happened unnecessarily.

If later it looks wise to generate more income/give up work to improve quality of life/go travelling/whatever, then that's a different story.It's also possible to go halfway - by taking out cash lump sums, but leaving the rest invested for later.

masonj3

Hi edinvestor, thanks for your thoughts.

The shall we do it now or wait senario has been on our minds for some time !!2-3 yrs } since my husband became unwell really i guess, but with everyday life its something we never tend to do anything about, whats happening with the credit crunch at the moment just really prompted the discussion again.

The age difference is def something to think about too maybe an idea to take the pensions in stages one now, another 5/6 years down the line etc - my husband worked hard when he was well and although he doesnt have a life threatening condition his mobilty is slowly getting worse over time and I sometimes think that it would be nice to just have a slightly better quality of life at times, days out, breaks away rather than just a normal "everyday" life - if that makes sense lol. But in saying that nothing which couldnt wait a few more years - so indecisive hey!

Possibly for the near future maybe we should think about taking a lump sum from one or two of the plans and leave the rest invested - would this term be classed as deferring a pension? sorry am a bit clueless

Thank you for your opinion helps to know what others think / would do so much appreciated x

EdInvestor

masonj3 wrote: »

Possibly for the near future maybe we should think about taking a lump sum from one or two of the plans and leave the rest invested - would this term be classed as deferring a pension?

Deferral means that when the pension matures at the retirement date on the contract you decide to defer the decision to take a pension income until later, ie leave the pension as it is.

To get the tax free cash out and leave the rest invested, you need to move the fund into something called "income drawdown".This is normally done via a SIPP.

You transfer the pension to the SIPP provider, who then pays you the tax free cash.You then invest the remaining money - in various types of funds, or shares or bonds/cash - usually a mixture of them.Similar to ordinary pension investment options, but there is a bigger choice in a SIPP (including cash, which some people like for a portion of their money).

Then you can draw an income every year between zero and 120% of the annuity rate for your age.You can vary how much you take every year - this can be useful for tax purposes.

If you die after you've gone into drawdown but before you get to age 75, your spouse can take the money out of the drawdon in cash, minus 35% tax.Note that if you die with the pension unvested (ie as it is now) 100% of it goes to the spouse in cash, tax free.

masonj3

Thanks again edinvestor, lots of things there we wasnt aware of and you explained them so simply so thank you.

Some thinking to do now I guess no doubt will be in touch soon with more questions lol

Cheers x

masonj3

Didnt I say Id be back soon with more questions lol

Re deferrals - our private pension plans were set up via zurich and abbey life - we havent made any contributions for about 8 years now. When ever we have an illustration or quotation zurich usually suppy us with info based on taking an annuity via prudential. Im 54 and my plan states i can take my pension from 55 onwards. If I simply did nothing until I was say 60 would that mean I had deffered my pension or would it only be a deferral if say I went down the SIPPS route and had a tax free lump sum and tied up the remainder until I was ready to start receiving a regular income???????? sorry to complicate things just still unclear on this

dunstonh

SIPPs are an option but they are designed for the experienced investor. They may be valid but they are not the only option here. You may find this option is either too expensive or above your understanding where you could do more harm than good.

Providers are required to show annuity purchase as default. Partly as income drawdown is considered a high risk option by the FSA. That view is too simplistic in reality but the basis of their concerns has merit generically for the basic consumer who is generally low knowledge and cautious and doesnt have enough money to lose or suffer fluctuations in their retirement income. To give you an idea. I would personally do drawdown (via personal pension) yet professionally I do far more annuity purchases. Some like the income certainty and some dont like the idea their future income may need to be adjusted if investment returns are not what they wanted. Others can afford flucuating investment returns or their are good reasons for getting more capital out of their pension than an annuity would allow.

There is also a more recent option where enhanced/impaired annuities allow capital buy back so you get a sort of middle ground between standard annuity and drawdown.

EdInvestor

masonj3 wrote: »

Re deferrals - our private pension plans were set up via zurich and abbey life - we havent made any contributions for about 8 years now. When ever we have an illustration or quotation zurich usually suppy us with info based on taking an annuity via prudential. Im 54 and my plan states i can take my pension from 55 onwards.

Legally you can take a pension from age 50 onwards. There might be a penalty under your contract if this was early but only if you were invested in a With profit fund.If you are so invested you should check if you have any valuable Guaranteed Annuity Rate as well which might mean it was good to stay until maturity.Unlikely though with AL and Zurich AFAIK..

If I simply did nothing until I was say 60 would that mean I had deffered my pension

They would contact you at age 55 and ask you what you want to do.If you didn't want to take your pension yet, they would defer it.

or would it only be a deferral if say I went down the SIPPS route and had a tax free lump sum and tied up the remainder until I was ready to start receiving a regular income?

This would not be a deferral, it would be a transfer to take immediate benefits, even though you would only be taking tax free cash initially, not a pension.

EdInvestor

dunstonh wrote: »

SIPPs are an option but they are designed for the experienced investor.

They are the normal route for those who want to take tax free cash/do income drawdown with smaller pension funds.