Pension Freedom

Nothing forces you to purchase an annuity. The necessity to use your pension fund to purchase an annuity was removed many years ago.

Only you can decide whether withdrawing the funds, over a period of years, to use your tax allowance is the right thing to do, but it certainly could be.

Depending on the particular scheme rules you may have to transfer the pension to another scheme / provider to allow this. You also need to ensure that valuable benefits (Guaranteed Annuity Rate etc) are not lost.

Rate_tart?_sticks_and_stones..... wrote: »

We are in a very fortunate position in that we have accrued sufficient pensions, savings, investments etc. that we do not need to rely on one of my former employer's pension of £80,000.

I was made redundant last year and I am now 55. We would really like to access my pension, take the 25% lump sum then ideally further annual lump sums within my tax allowance every year until the £60,000 has gone. We will use this annual sum to pay for holidays for ourselves and my mother and or great-nieces but we could also invest some of it.

I am I correct to say that my only option is still to buy an annuity and that I cannot access this annually but have to have a monthly amount?

I apologise if this is a stupid question. I am ok with money saving in other areas but I find pensions, annuities and investments rather puzzling.

Provided the £80K pension is not a 'Final Salary' one, then yes, of course you can now access it. That's what the reforms are all about.


If you are saying this is truly 'spare cash' then the appropriate strategy might be as follows:

• Take the 25% lump sum straight away, leaving the other £60K invested.
• Provided no other income, draw another £10,600 sometime in the tax year to 'use up' your annual tax allowance.
• Same again next year..... until fund is depleted.
• Any amounts drawn down that you don't wish to spend straight away, ensure that you use your full £15K ISA allowance (each) to lock it up in tax free ISA's

The other main decision you have to take is which investment funds to use for the pension money (whilst it is awaiting drawdown) and the same for the ISA. That's all about the risks and/or volatility with which you are comfortable.

Rate_tart?_sticks_and_stones..... wrote: »

I am I correct to say that my only option is still to buy an annuity and that I cannot access this annually but have to have a monthly amount?

No. It has not been necessary to buy an annuity with a pension pot since 2006 when Alternatively Secured Pensions were introduced. Subsequent governments have repeated the message. It's still very common for people to have missed this message and you shouldn't worry about being one of those who missed the message. It's just a case of learning what your options are.

Rate_tart?_sticks_and_stones..... wrote: »

I was made redundant last year and I am now 55. We would really like to access my pension, take the 25% lump sum then ideally further annual lump sums within my tax allowance every year until the £60,000 has gone. We will use this annual sum to pay for holidays for ourselves and my mother and or great-nieces but we could also invest some of it.

No problem at all to do that, it's part of what the pension freedoms are for. With the 75% you can:

1. Take all or any part of it out as a lump sum whenever you want to. This is called "flexi-access drawdown". It lets you take that tax free initial 25% then the rest whenever you want.

If it is the first payment you may pay far too much tax because the pension provider has to assume that you will be doing the same each month, unless you take it all out. So just start with a regular payment for a while then once the pension place has your correct tax code, you'll avoid the big overcharge based on assuming the bit amount every month for twelve months. It's crazy but if you took out say £30,000 you'd be charged tax as if you were going to take out £360,000 during the year even though you don't have that much in the pension.

Once convenient thing to do for many people is to divide the total amount by the number of months they want to take it over, then set up regular monthly payments to pay the money. This is convenient because then all you have to do is the usual saving and spending that you've been doing since you became eighteen. It's a good choice for a person who will not want a bigger income once the state and any later work pensions have started. Because the initial calculation ignores investment growth there will usually be some money left over, though if markets do really badly there might not be enough to make all of the payments, so you need to pay a bit of attention once or twice a year.

2. The other main flexible option is called an "uncrystallised funds pension lump sum" (UFPLS). If you use this, 25% of the money is tax free and the rest is taxed as normal income. You can still avoid extra tax by taking a first small payment then a regular payment once the pension provider has the tax code from HMRC. This option may be made available by pension providers who don't allow flexi-access drawdown.

A pension firm is nor required to offer these freedoms. If they don't offer the one you want to use, just transfer to a place that does. No shortage of them and transfers are fast and easy.

However, before you use the freedoms, you should ask your current pension provider whether there is a "guaranteed annuity rate" attached to your pension scheme. These can have annuities that pay twice as much as open market annuities today and that can make it a better idea not to take the money quickly, unless you have plenty of other income available in the future.

If you were within a few years of state pension age you'd have a far better way to get a guaranteed income for life than buying an annuity: deferring the state pension. Depending on when a person reaches state pension age this pays out something like two or three times as much inflation-protected income as an annuity does.

If it is the first payment you may pay far too much tax because the pension provider has to assume that you will be doing the same each month, unless you take it all out. So just start with a regular payment for a while then once the pension place has your correct tax code, you'll avoid the big overcharge based on assuming the bit amount every month for twelve months. It's crazy but if you took out say £30,000 you'd be charged tax as if you were going to take out £360,000 during the year even though you don't have that much in the pension.

This may not work. A lump sum for the year may work out better even if you have to reclaim any tax overpaid.

The reason is, many providers will be introducing new fees. Some will have min size withdrawals, some will limit withdrawals to 2, some will charge a fee for each withdrawal.

nandrews wrote: »

I may have misunderstood but the briefing in "Pension Freedom - Martin Lewis’ 5 minute briefing" Option 1 and 2 gave me to understand that drawing down 25 % isn't all tax free. But that 25% of the amount drawn down is tax free!
It maybe the way it is worded.

Nigel

There are several/many options and permutations of taking the TFLS and doing the Drawdown. The' best' way will vary depending on each individual's circumstances and needs.