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  • FIRST POST
    • huon
    • By huon 8th Mar 18, 12:25 AM
    • 5Posts
    • 1Thanks
    huon
    Do I have to buy an annuity?
    • #1
    • 8th Mar 18, 12:25 AM
    Do I have to buy an annuity? 8th Mar 18 at 12:25 AM
    I am just coming up for retirement in June. I will have my state pension which will be about 140 a week and a former employers pension worth about 98k. (I was contracted out).
    I have been trying for over a year to transfer the 98k into a SIPP/ drawdown arrangement. I have other sources of money, 1SA/second home and I intend to do some part time work until I am 70 (I am a tutor).
    My idea was since when I stop working altogether I will have some space between my state pension (about 7k p.a.) and my tax free allowance (about 12k p.a.) so I could then pad things out a bit by withdrawing the odd 5k p.a. from my SIPP. In the meantime I would leave it invested and hopefully it would grow a bit.
    I like this idea. Annuities seem bad value and although I have no dependents, when I die it would be nice to leave any residues to my beloved nephews in Australia.
    The 98k is DB and there is something about a guaranteed minimum. Because it is more than 30k AON (who manage it) said I must get an IFA by law. So I got one and they have been very good, if very slow, getting me a better deal on an annuity from AON already and now looking for better quotes from other annuity providers.
    The thing is though they insist I must have an annuity of about 3000 and I don't want one. What makes it worse is that if I take the annuity (single life AON cost 58k) I would get some residue back but some of this would be taxable. Which defeats my object.
    The state pension site does say that I will have a second pension of about 60 p.w. I think it's called COPE which fits in with the 3,000 annuity. So maybe I am stuck with taking it.
    To add to this I got diagnosed with a low grade cancer a few months ago. I had an op and things are going well but obviously it has reduced my life expectancy and made me even less keen to buy an annuity.
    Should I bite the bullet and take the IFA advice to buy a small annuity or should I hold out and insist I want it all in a SIPP?
    Last edited by huon; 08-03-2018 at 12:28 AM.
Page 1
    • Brynsam
    • By Brynsam 8th Mar 18, 12:56 AM
    • 936 Posts
    • 606 Thanks
    Brynsam
    • #2
    • 8th Mar 18, 12:56 AM
    • #2
    • 8th Mar 18, 12:56 AM
    Your company scheme was contracted out of the State Additional Pension. You and the employer paid lower NI contributions while you were building up benefits in the scheme. In broad terms, in return for this, the scheme undertook to pay a minimum level of pension - a Guaranteed Minimum Pension (GMP).

    If you transfer to a SIPP the GMP rights will be treated the same way as any non-contracted out rights you are transferring. This has now been the case for some years. You lose the defined benefit guarantee, including any guarantee about the minimum payable. You can take your SIPP benefits as drawdown - but only if the provider to whom you transfer offers this facility. Not all do.

    Because your transfer value exceeds 30,000 you are required to seek (but not necessarily follow) advice from a suitably qualified and properly regulated individual in order for the transfer to proceed, but if the adviser is scampering around looking for an annuity when you don't want one there's a crossed wire somewhere.

    On the subject of annuities, is your adviser aware of your diagnosis? You may qualify for the nastily-named impaired life annuity - i.e. you get more because your life expectancy is reduced. Even if you don't want an annuity it is worth checking out what you might get, in case the figure changes your mind.
    Last edited by Brynsam; 08-03-2018 at 12:59 AM.
    • sandsy
    • By sandsy 8th Mar 18, 8:06 AM
    • 1,322 Posts
    • 796 Thanks
    sandsy
    • #3
    • 8th Mar 18, 8:06 AM
    • #3
    • 8th Mar 18, 8:06 AM
    The adviser cannot insist you take an annuity.
    But you have to tell the adviser what you hope to achieve through transferring. If you want drawdown, tell them that.
    Make sure they know about all other sources of income you have and about your illness. They need all that information to advise you properly.
    • dunstonh
    • By dunstonh 8th Mar 18, 9:52 AM
    • 92,613 Posts
    • 59,931 Thanks
    dunstonh
    • #4
    • 8th Mar 18, 9:52 AM
    • #4
    • 8th Mar 18, 9:52 AM
    No adviser can insist on anything. They can make a recommendation and give justification but they cannot insist.

    It is quite common for recommendations to use an annuity to bring your secure income to the level that covers your committed outgoings. Therefore leaving drawdown to cover your discretionary outgoings.

    This is all part of the discussion. So, why has it been recommended and what discussion has taken place around it?

    To add to this I got diagnosed with a low grade cancer a few months ago. I had an op and things are going well but obviously it has reduced my life expectancy and made me even less keen to buy an annuity.
    Why would it make you less keen? You get a better rate because of your health and with the new death benefit options you still get to achieve your objective. Or maybe take a better rate on the annuity and less on the drawdown allowing more of the drawdown pot to be made available on death.

    What other income will have in retirement as 98k is low if it is the only thing. That may explain why they are looking to boost your secure income a little.
    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.
    • huon
    • By huon 8th Mar 18, 5:20 PM
    • 5 Posts
    • 1 Thanks
    huon
    • #5
    • 8th Mar 18, 5:20 PM
    • #5
    • 8th Mar 18, 5:20 PM
    Thanks very much for the replies guys. The main thing I needed to know was if I could refuse the annuity completely if I wanted to and I am very pleased that I do have that option.
    Regards whether the IFA has all my information, I can confirm he does. I filled in lots of forms with all that. He has been kept informed about the medical aspect. I was quite frustrated that this led to more forms asking for info I just didn't have. I tried to speak with the consultants but when you are NHS this is not so easy. Anyway in the end I got enough info for the annuity companies to quote from. They have been good about this.
    I was pleased to hear that I should be able to buy an annuity and put the rest into some kind of drawdown. I had understood that I would need to pay tax on a portion of the surplus which I wanted to avoid by spreading it over a number of years.
    I will wait until I hear what offers the annuity companies are making and decide then whether I should take one. If it seems reasonable I will.
    I appreciate it is a small pot but I have other sources. Along the way I have had about 10 years off work to travel and enjoy myself which leaves one with less for retirement but we all make our choices and live with the consequences and I definitely have no regrets as it has been a great life.
    Thanks again for your kind advice.
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