Pension Options at Retirement - Personal, not AFPS type

This issue seems to have generated a fair bit of heat lately so I thought it could be useful to outline the various options available from age 55.

The two extremes are, purchase an Annuity, and Drawdown / flexible access.

What is an annuity?

In short, you pay a lump of £ across to an insurance company in return for a guaranteed payment.

The shape of this payment can vary hugely, depending on personal circumstances and requirements. For example, smokers tend to die earlier so get a higher bang for their buck. There is ALWAYS a question on the application form along the lines of, "have you used tobacco products over the last 12 months?" If you're a non smoker, have a quick puff on a fag and you'll have to say yes - so will get a higher payment.

It is also possible to purchase a ton of guarantees, all of which will cost £ as they need to be factored in. Example being, escalation in payment; a guaranteed payment for 5/10 years; 50% of the annuity to go to a nominated beneficiary, etc etc etc.

Whats good about an annuity?

In a word; certainty. You will NOT have to worry about the rises and falls in markets; this is a great comfort to many. You know exactly what you're getting.

Whats not so good about an annuity?

Well, IMO a fair bit. Providers are VERY cautious in their assumptions so you may not get back as much as you would if you remained invested. The fund may well die with you or when your beneficiary dies, much to the delight of the provider. If you and your beneficiary get wiped out in a car crash or freak suspender incident, they'll be very pleased as they may not have to pay out any more money.

The fact that your income is guaranteed also means that you can't change it to suit your changing needs - if you have, say, income from shares and that suddenly shoots up, you may well pay more tax than you would want.

You're also not in the markets and so will not benefit from any investment growth. ( I am not going to discuss index linked annuities, which can provide some upside)

And generally speaking, you can't change your mind. the annuity is fixed.

Tell me about Pension Freedoms

In 2015 the Chancellor decided to kick most of the restrictions around what you could do with your personal pension pot into touch.

From age 55, you could take 25% of your personal pension fund as tax free cash in one go, nibbling away at the rest of the fund as and when suits you.

Whats not so good ?

Two main issues: the values can fall as well as rise - which people pretend to forget - and they can be complicated to look after. Which is why you should seek professional guidance as this is not suitable for everyone.

What is good about them?


Quite a bit actually, IMO.

You SHOULD benefit from long term growth, if you don't strip out too much income. You can take 25% tax free in one go, and as mentioned, access the rest as and when you need. Or, you can take a payment that is part tax free cash, part taxable as income. Payments can be tailored to your precise needs.

What I really like is the treatment of the fund on death. Pop your clogs before age 75 and the WHOLE FUND can be paid to your nominated beneficiary totally tax free. They don't have to take the money, though; it can be left invested and they in turn can nominate a successor beneficiary. Same drills on death - before 75, whole fund available tax free.

On death AFTER age 75, the whole lot can be cashed in BUT will be taxed as income in the hands of the recipient / beneficiary. However, you don't have to take the whole lot; it can be left invested, accessed as required, with successor beneficiaries nominated.

This is seriously good planning for the right people.

Have a look at these links for more information.


 

elovabloke

ADC
Moderator
Financial advice from an Arrse forum - you know it makes sense.
 
Hush, simpleton.

Tell us again how your cunning plan to minimise tax is to take a guaranteed income?
I will, when you can explain your obsession with

Pop your clogs before age 75 and the WHOLE FUND can be paid to your nominated beneficiary totally tax free.
Now, I don't know about you.

However, it is not my intention to die and pass on a Tax Free Lump sum to some nominated beneficiary. It is my intention to enjoy my retirement and SPEND my money, whilst keeping on the correct side of the Tax man, whilst MINIMISING my tax liability. Hopefully, before I die.

I really have no idea how, or why, you have difficulty in understanding this.
 

MoleBath

LE
Kit Reviewer
Book Reviewer
Well before pension age get pension forecast to check on qualifying years
 
I have been paying £55 into a Scottish Widows Stakeholder Pension for about 16 years, and it doesn't seem to be doing anything at all in the past few years (possibly just the market) - The current value is just under £15k. It is currently due to mature when I am 55 - in 7 years.

It was only set up as a beer token fund for me, as I have my full Army pension, Work pension, and eventually state pension. But I would like it to work a little harder for me!

Is there a way I can take it out of it's current fund and re-invest it in something better, or is it stuck there until i'm 55?

I know I could phone them and ask, but I know i'll just get a load of flannel as they will not want to lose this massive investment :rolleyes:
 
I have been paying £55 into a Scottish Widows Stakeholder Pension for about 16 years, and it doesn't seem to be doing anything at all in the past few years (possibly just the market) - The current value is just under £15k. It is currently due to mature when I am 55 - in 7 years.

It was only set up as a beer token fund for me, as I have my full Army pension, Work pension, and eventually state pension. But I would like it to work a little harder for me!

Is there a way I can take it out of it's current fund and re-invest it in something better, or is it stuck there until i'm 55?

I know I could phone them and ask, but I know i'll just get a load of flannel as they will not want to lose this massive investment :rolleyes:
You will have tons of investment options within that pension. If you've registered online, have a look. There may well be some kind of Attitude to Risk questionnaire which can be very useful.
If you e not registered for online, it's worth doing.

 
Last edited:
Happy to speak offline if you PM me a number.
Cheers BB, i will do.

It appears I must have registered for online access at some time in the past, but have no idea of my log in details, so they have to post them to me. Once recieved I'll give you my number to discuss the options if you don't mind.

I'm a Yorkshireman mind, so I'm not paying you :grin:
 

The_Duke

LE
Moderator
Cheers BB, i will do.

It appears I must have registered for online access at some time in the past, but have no idea of my log in details, so they have to post them to me. Once recieved I'll give you my number to discuss the options if you don't mind.

I'm a Yorkshireman mind, so I'm not paying you :grin:
As a £55 investor, you aren’t likely to be hitting his target client list any time soon!
 
As a £55 investor, you aren’t likely to be hitting his target client list any time soon!
Indeed, but I'm happy to give ARRSErs a steer with stuff like this...
 

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