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    • rhys1984
    • By rhys1984 10th Feb 18, 2:23 PM
    • 7Posts
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    rhys1984
    Fixed rate income from SIPP?
    • #1
    • 10th Feb 18, 2:23 PM
    Fixed rate income from SIPP? 10th Feb 18 at 2:23 PM
    Hi all,
    My mother has a personal pension with Prudential, and is wanting to start taking income from it.
    She is only 55, and has an income pot of around 45000, so I and she understands that income will be low from it (she only works 8 hours per week at the moment).

    I have been looking into an annuity, and see that rates average around 1100 per year, increasing by 3% annually. However, if I move it to a SIPP, and then place the money in a fixed-rate saving account (paying around 2.5%) with the 45000, this would give a similar income - and she would keep the capital. In a few years time when interest rates (perhaps) improve, this income could reach 1600 if rates go higher.

    Am I missing something?

    Thank you.
Page 1
    • Linton
    • By Linton 10th Feb 18, 3:30 PM
    • 9,395 Posts
    • 9,529 Thanks
    Linton
    • #2
    • 10th Feb 18, 3:30 PM
    • #2
    • 10th Feb 18, 3:30 PM
    A fixed rate savings account doesnt provide a return that increases over time. Steady inflation of say 10% to keep the numbers simple would require the generation of 1100, 1210, 1331,.....forever. The interest rate on savings cant increase forever.
    • xylophone
    • By xylophone 10th Feb 18, 4:15 PM
    • 25,589 Posts
    • 15,117 Thanks
    xylophone
    • #3
    • 10th Feb 18, 4:15 PM
    • #3
    • 10th Feb 18, 4:15 PM
    However, if I move it to a SIPP, and then place the money in a fixed-rate saving account (paying around 2.5%) with the 45000,
    Do you mean transfer to a SIPP and hold the money within a SIPP in a fixed rate deposit account?

    Not all SIPPS permit the use of a deposit account and even where they do,
    a quick glance at the Investment Sense website indicates that a rate of 2.5% ( or a little above) is available from only one provider and for terms of 5/7 years.

    Has your mother had an appointment with Pensionwise?

    https://www.pensionwise.gov.uk/en?gclid=EAIaIQobChMItfH1-96b2QIV753tCh0e_QWZEAAYAiAAEgKuPfD_BwE
    • dunstonh
    • By dunstonh 10th Feb 18, 5:01 PM
    • 93,038 Posts
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    dunstonh
    • #4
    • 10th Feb 18, 5:01 PM
    • #4
    • 10th Feb 18, 5:01 PM
    However, if I move it to a SIPP, and then place the money in a fixed-rate saving account (paying around 2.5%) with the 45000, this would give a similar income
    If I buy an apple, should I not be surprised that its not similar to a banana?

    You are not comparing like for like. A guaranteed indexed income for live versus one that is going to be ravished by inflation and likely run out before death.
    and she would keep the capital. In a few years time when interest rates (perhaps) improve, this income could reach 1600 if rates go higher.
    No she wont. it will be inevitable that sooner or later she will eat the capital as the interest wont be enough. That 45k will be worth around 30k in 10 years time. The interest it generates will be around 2/3 in spending too.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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