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

masonj3

So if u guys were in this position now whould you take any action i.e. buy annuitiy / go down sipp route or would you leave the funds to grow for a few more years?

dunstonh

Currently the pensions are totally tax free (including inheritance tax). The minute you crystallise the pensions (which is drawdown or annuity purchase) then you bring the pension into a taxable environment. The 25% goes into savings or investments which are taxable (excluding ISA). The remaining fund is subject to tax on death (if in drawdown or capital buy back with annuity). The income provided (by annuity or drawdown) is taxable.

So generically, if you dont need the money you dont take it. However, there are occassions you might. Such as IHT not being an issue for you and going into drawdown to fund the £7200 ISA allowance for both of you as much as you can to get the money out of the pension.

There are pros and cons to taking it or leaving it. Its really a judgement call depending on your circumstances and which you feel the best guess is.

If I was taking the money, I personally would use drawdown and use a personal pension that is cheaper than SIPP. However, as I mentioned on another thread, I professionally still do more annuity purchases than drawdown cases because when both options are fully explained with pros and cons many prefer the annuity option due to the certainty.

So if u guys were in this position now whould you take any action

so, based on the above, what I would do doesnt matter to you. There are things we dont know about your circumstances that could sway it one way or the other and then there are your opinions and experience on investments going forward

masonj3

Thanks again for your thoughts - does help reading others opinions etc . Your comment below:-

"There are pros and cons to taking it or leaving it. Its really a judgement call depending on your circumstances and which you feel the best guess is." -

If under normal straightforward circumstances how does one decide when to take a pension, to a certain extent you need to plan ahead yet its so hard to know what to do for the best, should we take some funds now and have more treats in life etc or do we wait for longer and let them grow a bit more, is it better to take all 3 in one go or to stagger taking them, how does one decide what to do in this situation, if we needed the money urgently at least I guess we wouldnt be dithering over what to do!

You also said:-
"so, based on the above, what I would do doesnt matter to you. There are things we dont know about your circumstances that could sway it one way or the other and then there are your opinions and experience on investments going forward"

There isnt anything else I ve missed purposely or not purposley about our circumstances, these are our exact circumstances and we just cannot decide on a way forward and cant seem to find any info etc to help sway us one way or another either. Obviously we are not "experts" in this area hence trying to gain advice, opinions etc but we are just totally stumped as to what to do for the best, or whether it simply makes no difference when we take our pensions

Overview of our circumstances again
* Wife 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 - income £198.25 per week

* They own their own home and have approx 7k in savings and no mortgage.
* No credit cards, loans or other monthly commitments other than utility bills, council tax etc.

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

Any final thoughts anyone??
Thanks x

EdInvestor

Firstly, I would suggest the wife's fund is left to grow as she is still quite young. Let us assume the husband's smaller pension is left as is.

Looking just at the husband's pension of 138k.

Let's say he took benefits by moving this to a SIPP and extracting the tax free cash of 34,500 pounds, leaving 103,500 in the SIPP.

1.What would you do with the 34,500 cash?
Spend it? On what?
Invest it ( think tax free stocks and shares ISAs every year one in each name)
Save it? (how: would you park it for a rainy day, if so think NS&I index linked certificates, keep up with inflation and tax free)

2.How would you invest the money remaining in the SIPP? (Involves choosing a selection of funds, much the same as with a pension).
Would you take an income from the SIPP or leave it to grow?

*Note that at the moment if the husband died, the whole pension of 138k would go to the wife in cash tax free. If the pension is put into the SIPP and the tfc taken and the husband died, the wife would get less:the tax free cash (34,500) plus 69,000 from the pension ( which would have to pay a 35% tax charge), total 103,500..

The issue is really a lifestyle one it's really up to you what you want to do with your lives over the next few years.There's no financial "no-brainer" way to go IMHO.

masonj3

Thank you edinvestor x

I see your thinking re leaving the my pension and my husbands smaller one and looking at taking perhaps my husbands larger pension, moving the funds possibily into a SIPP

With the lump free sum we would probably spend it on some home improvements and a new car so that would take care of that lol

Income wise again we would prob be in a dilema as to whether to take an income or let it grow and again I guess advice would come down to lifestyle and or recommendation from others.

Re my husband dying if he dies before he takes this plan, I gain the lot tax free, if he takes it then dies then i obviously dont get the tax free amount of £34500 and I would pay a 35% taxation charge on remainder £103500 .....have i understood that correctly?? Not sure where the £69000 comes into it ??? sorry being a bit blonde here lol

With regards to leaving everything as it it for a few years is for the funds to grow - is there a safe level of a percentage increase one could use to estimate the potential growth of funds per annum in order to try an gauge an idea of how much the plan will have grown to say in 3 , 5 years etc??

Cheers

EdInvestor

masonj3 wrote: »

Re my husband dying if he dies before he takes this plan, I gain the lot tax free, if he takes it then dies then i obviously dont get the tax free amount of £34500

Well you would, if you hadn't spent it!

and I would pay a 35% taxation charge on remainder £103500 .....have i understood that correctly??

That's correct. So you would get £69,000 (103k minus 35%)

With regards to leaving everything as it it for a few years is for the funds to grow - is there a safe level of a percentage increase one could use to estimate the potential growth of funds per annum in order to try an gauge an idea of how much the plan will have grown to say in 3 , 5 years etc??

Around 7-8 % would be a long term measure, but in the short term you could have a volatile period (like now when markets are falling) when your fund could actually decrease in value,or a strong growth period where it went up by double that for a while.

There's no really safe number.In the SIPP your could invest quite a lot of your fund in safe assets like mainly cash and bonds with less in equities which would reduce risk of loss, but also reduce growth. Since you can be flexible about income this is helpful as you can just reduce the amount you take out if you feel the fund is reducing too quickly due to poor markets.

Of course you can use it to buy an annuity any time - and no doubt your husband would get a high "impaired life" rate - but this would mean you would lose the capital, not so good for you as you're much younger.

Try to do some more reading about all the options, especially income drawdown and how it works. A few websites

https://www.williamburrows.co.uk
https://www.annuitybureau.co.uk
https://www.moneymadeclear.gov.uk
https://www.pensionsadvisoryservice.org.uk

masonj3

Thanks edinvestor for clarifying a few things for us - deffo gives me and hubby something more to go on so cheers for your help etc

keep up the good work lol x

bigturnip

You mentioned the reasoning for taking a lump sum or drawing an income was to improve your quality of life with holidays and days out. Have you explored what help is out there? It depends on whether you want to ask for this help, I know some people prefer not to rely on the state / charity and keep control of these things themselves, but by taking a lump sum or income now will pretty much cut you off from this help as you will be seen as able to self finance. Social services will help fund holidays for the disabled and/or their carers, but they will try everything not to give you any money, depends whether you are in the mood to fight them. There are a number of charities out there that will help without putting you through the rigmarole that social services will. Are you sure you are claiming everything you are entitled to? There are many things out there that the government won't always tell you about unless you ask, like council tax reductions, free road tax, capped water rates, direct payments, VAT relief, etc.

masonj3

Thanks big turnip - we've explored several options since my husband became ill. Unfortunately the fact we have these pensions prevent us from gaining any further help as in council tax benefit or pension credit - even though we're not in receipt of an income at the moment from our pensions we have the choice to so they class the income from them as notional, had we not got these pensions we would have been entitled to much more, just the waythe cookie crumbles i guess !