Immediatelt Vesting Pensions

Legacy_user · 15 July 2004 at 4:14PM

I am completely new to this - so I really hope I am asking this question in the right way!

I have heard about "Immediately Vesting Pensions" as a way for over 50's to put the maximum annual contribution into a stakeholder pension (by getting the government to top it up to £3,600), then immediately 'vesting' this pension - giving you a 25% tax free lump sum, and an annuity for the rest of your life.

I wonder if anyone out there has done this or has views on it as a strategy.

Many thanks.

Peter-Pan_5 · 19 July 2004 at 10:23PM

I believe Standard Life do it,if you look in their web-site.

System · 20 July 2004 at 4:50PM

Thanks for the info. Terry - I'll have a look.

hansi · 5 August 2004 at 9:16PM

Hi Anne, yes I have done one of there for my wife. I think it's a good idea, because althought you have to leave a substantial amount in the pension to cover your payments, you do get the 25% tax free lump sum immediately. My wife has has this going for about three years now and the fixed rate interest it pays every year works out at about 12% which is pretty good. When I took it out there was a loophole stating that if she died, the payments would revert to me, but that avenue has now been cancelled. Once you die, your money's gone. So you have to make sure that you live long enough to make it pay. ;D Take professional advice first but I reckon it's a good deal.

klondyke · 12 August 2004 at 8:59PM

You may get a better deal going through a discount broker, than buying direct. Mr klondyke used Hargreaves Lansdowne for a Standard Life special deal, though there may be better deals now from other brokers.

hansi · 12 August 2004 at 9:04PM

You may get a better deal going through a discount broker, than buying direct. Mr klondyke used Hargreaves Lansdowne for a Standard Life special deal, though there may be better deals now from other brokers.

Mr Hansi used HL too!

dunstonh · 21 August 2004 at 3:17PM

Virtually all pension providers do this but the main aim of these products is to take the proceeds for retirement annuity contracts with lower tax free lump sum benefits or combining multiple pension funds into one and provide a greater annuity, similar to open market option.

Although you can put cash into one and vest it immediatly, it would be a strange thing to do at this time. You may gain 22% tax relief but you will only get 25% back as a tax free lump sum and the income is taxable. It would take a good number of years to see your income match what you contributed.

HOWEVER, paying into a stakeholder pension without immediatly vesting it could make a good investement for retired people. The tax relief of 22% is desirable and if you can hold on to age 75, then you could well get your money back in the tax free lump and have an income for the rest of your life from age 75 (based on age 75 annuity rates). If you were to die, the whole value (including the tax relief) would be paid out.

FelixTCat · 3 September 2004 at 8:39PM

Anne,

I have done this for some years now, with a Standard Life pension through HL. How good value it is depends on your age and tax position. The older you are, the better rate of return you get. It also depends on your tax position. If you are a higher rate tax payer, you get back 40% of your initial premium in tax relief and a 25% lump sum payment tax free. Even though the pension is then taxed at 40%, the return can still be good. If you are a basic rate tax payer, you get a 20% tax rebate and a 25% tax free lump sum, though your pension is taxed accordingly.

One joy is that the first pension payment is made immediately, on top of the lump sum.

It may be that annuity rates will improve a little over the next year or two. You may like to contact HL for more details to help you work out whether it will be a good deal for you.

Regards,

Mike

dunstonh · 3 September 2004 at 10:28PM

Anne,

It may be that annuity rates will improve a little over the next year or two. You may like to contact HL for more details to help you work out whether it will be a good deal for you.

i would question why they are using standard life. SL have only come up best annuity rates once this year for me.

I would strongly recommend that anyone reading this thread does not act upon the comments made.

For a 50-60 year old to purchase an immediate vesting pension when there is no requirement for income is just wrong. It would be bad advice.

By all means purchase a stakeholder pension but there is no requirement to commence it immediatly. The longer you delay the commencement, the more the fund grows. The older you are before you commence it, the better the annuity rate is. Plus, annuity rates improve with the more money you have. So, building up the fund value over the years is much better.

Felix, it is possible your circumstances are suitable for an immediate commencing pension (eg, high capital reserves but limited or low income). However, you should perhaps consider that you have received bad advice from HL.

klondyke · 6 September 2004 at 5:01AM

i would question why they are using standard life.

Simply because it is a special deal specifically for immediate vesting and set up for that purpose. HL are always at pains to point out that it is not a normal stakeholder (for which they tend to use Norwich Union if I remember rightly).

Nobody is suggesting that everyone should go out and purchase these - horses for courses etc. In fact the first year they did it (3-4 years ago?) the rates were much better than now, plus there was a good incentive. Can't remember what it was now ;D

Anyway only mr klondyke did it, not me - he's older than me ;D

dunstonh · 6 September 2004 at 11:34AM

I'm not sure if there was a special deal but I do know that they advertised it a lot.

I just popped onto Standard Lifes website and got a quote for immediate vesting pension.

For a 65 year old man, £5000 contributed is grossed up to £6410. £1602 tax free is returned with an annual income of £320.52. So, if you assume that the amount of £3398 was the total commitment, the income rate of the annuity is 9.4% before tax. (this assumes single life with a 5 year guarantee on a level basis). That sounds very nice.

That is exactly the same rate HL were advertising back in January 2003 (thanks to google for storing information that old).

Now, lets assume you invested into a stakeholder but not immediatly vesting but leave it until you are 65. Lets ignore any growth that it would make and assume that the fund is worth exactly the same as was paid in. Using the open market option available, Legal and General could offer 10.09%.

So, things to note by this. Both of these were done using age 65. Immediate commencement at age 65 may be appropriate if you require an income now. However, if you dont need an income now (eg, you are aged 55 and still working), you would be better leaving it. Also, by leaving it you would have investment growth. Therefore when you come to vest, the fund value would be higher. Your tax free lump sum would be higher too. Also, if you paid in every year, you fund value would go up, you would benefit from lower charges and when it comes to vest the pension, the higher the fund value, the higher the annuity rate as many providers have tiered rates. If you are a smoker or have impaired health you could get a couple of percent more. Annuity rates are based on age so the older you are the better the rate is.

Its easy to be sucked in by the first rate. However, the second option is even better.

Immediatelt Vesting Pensions

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