Pension dilemma

Madeinireland
Madeinireland Posts: 76 Forumite
in Pensions, annuities & retirement planning
I will soon be taking my BT DB pension. It’s a sizeable amount so I’m OK but I’ve put in too much in the way of AVC’s over the years so it’s not working out the way I expected.

I have a choice as to what I can do with the excess after taking the pension and a sizeable lump sum.

1. I can convert £78718 of my lump sum to buy additional BT pension. It would buy me £2542 of CPI indexed pension every year for me only. The pension has a 50% spouse benefit so I could convert the sum to buy £2259 pension for me and an additional £1129 for my wife when and if I depart this world before her. She is 52 and I am 58.

2. Alternatively I can purchase a lifetime annuity on the open market with the £78718.

I always thought the BT pension reverse commutation conversion was supposed to be poor at something like 31 to 1 but when I checked out an annuity for me as a single life (admittedly as a RPI increasing sum as I couldn’t find CPI) it only gave £1564 so it seems much worse.

Any ideas? As it looks like the lump sum conversion is the best way to go unless I can think of something else.

Thanks...
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Comments

  • skycatcher
    skycatcher Posts: 330 Forumite
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    I'm in that pension scheme and soon to make my decision on the options. I am not in the fortunate position to have AVCs. I have considered commuting some of my lump sum for pension and think I'll stick with the tax free lump sum. Have you considered investing the £78k? If you were to follow the often cited 4% withdrawal rate you could take £3k a year.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Name Dropper Photogenic First Anniversary First Post
    Is your wife still working? Use the lump sum to directly enhance her pension provision.
  • Brynsam
    Brynsam Posts: 3,643 Forumite
    First Anniversary Name Dropper Combo Breaker First Post
    skycatcher wrote: »
    If you were to follow the often cited 4% withdrawal rate you could take £3k a year.

    Just because something is 'often cited' doesn't make it a good idea....
  • tacpot12
    tacpot12 Posts: 7,943 Forumite
    First Anniversary Name Dropper First Post
    Brynsam wrote: »
    Just because something is 'often cited' doesn't make it a good idea....

    The 4% rule could be too low for UK residents with significant state pension entitlement, 5 - 6% could be more appropriate. My SWR according to Firecalc and cFIREsim is above 6% but I have close to a full state pension and some old DB pension entitlements that I can take without actuarial reduction at 62 and 65.
    The comments I post are my personal opinion. While I try to check everything is correct before posting, I can and do make mistakes, so always try to check official information sources before relying on my posts.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    tacpot12 wrote: »
    The 4% rule could be too low for UK residents with significant state pension entitlement, 5 - 6% could be more appropriate. My SWR according to Firecalc and cFIREsim is above 6% but I have close to a full state pension and some old DB pension entitlements that I can take without actuarial reduction at 62 and 65.

    What does the investment portfolio consist of to achieve these objectives?
  • drumtochty
    drumtochty Posts: 439 Forumite
    First Anniversary First Post
    Unobtainium investments.
  • Madeinireland
    Madeinireland Posts: 76 Forumite
    Unfortunately I am unable to invest the £78k otherwise I would stick it in a SIPP and do that. The only options it seems are to convert it or buy an annuity sadly, unless someone can tell me otherwise. As this fund is excess AVC’s after taking max lump sum it appears the scheme only allows me to purchase an annuity from that.

    In more detail...

    I have a pension lump sum of around £98k and AVC’s of about £225k

    I can convert £78k of the pension lump sum to more pension and then extract the £225k + £20k tax free or I can take the full pension lump sum of £98k and £147k of the AVC’s tax free and then purchase an annuity with the residual £78k of AVC’s.

    It’s a mystery to me as to why I can’t just transfer the residual AVC’s out to a SIPP as a crystallised fund (as I was told I could do before) - I have asked the pension helpdesk several times and this is the latest answer. I’m not sure how to get any further in terms of the definite answer. I’m so fed up with them now I feel I should just accept it and get on with it.
  • shinytop
    shinytop Posts: 2,098 Forumite
    First Anniversary First Post Name Dropper Photogenic
    My scheme was the same. For the residual AVC the choice was an annuity or a taxed lump sum. Because I don't need the max lump sum (and my AVC is relatively small anyway) I'm transferring the whole AVC to a SIPP. I don't know if the inability to transfer crystallised funds is regulation or just scheme rules but that's how it was for me too.
  • Madeinireland
    Madeinireland Posts: 76 Forumite
    Hi Shinytop,

    It sounds like we have the same issue and I’m fairly sure it’s scheme rules as I have found a couple of providers so far with a quick check who are happy to accept crystallised funds. The thing is they are not specific about what type of annuity in the documentation ( just says purchase an annuity) so I did think perhaps I could purchase a fixed term annuity for a very short period and then switch to drawdown when that matures. When I mentioned that to the helpdesk guy he is saying now it needs to be a lifetime annuity. Why are they so restrictive?

    Anyone know?

    Thanks...
  • NoMore
    NoMore Posts: 1,081 Forumite
    First Post First Anniversary Name Dropper
    https://www.btpensions.net/assets/uploads/documents/AVC-options-leaflet-for-retirement-pack-22-July-website-version-pdf.pdf

    It's all of AVC's for transfer or nothing, no partial transfers according to this. No mention of annuity having to be a lifetime annuity but this is only a summary rather than the full rules.
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