My plan was to take the maximum tax free sum out of my pension scheme, then drawdown just enough money to stay under the personal tax threshold each year out of the Remaining 75% Supplementing that money, by using money from my tax free lump sum as and when needed.
I’m in a similar situation but am already 58.
I’ve consolidated all my Defined Contributions pensions into one scheme but left my Final Salary schemes alone, as they are linked to RPI which at 3.3% PA isn’t bad at the moment.
A problem I think you will hit soon is that if your pension is worth more than 80K you will HAVE to take financial advice if you want to transfer it to a scheme that offers flexibility and as financial advisors charge between 1-3% that’s a significant amount whether you take their advice or not.
I am planning on retiring in about 3 years time and have already decided to go down the Drawdown Option as I don’t think the Annuity Option isn’t to my advantage (but I don’t have a wife to consider) and am planning on supplementing my salary whilst I am still work…[Read more]
Our pension is the Electricity Supply Pension Scheme. As of late 2020, I’ll have been a member for 31 years. Leaving the scheme and taking a pension in 2020 won’t be enough to live on. I’ve already asked our pension people for those figures. Leaving the scheme and taking my pot/fund completely out of the ESPS, taking the 25% as a tax free lump sum and then invest the remaining 75% in a drawdown plan, may be a better option. Enabling me to finish working at 55.
Hi. My speciality is pensions and this kind of dilemma is my day to day job.
Advice is compulsory with a CETV over £30k (CETV is the fund value the Scheme will offer you in lieu of the regular pension). Whatever any financial adviser states is the charge for advice, there is always room to get it reduced. For a start, mention you are seeing a few other advisers. Any opening fees should be reductible by about 15-25%.
Moving can make sense but brings risk. Note: if you only afford to pay for advice (a good adviser will charge c £5k upwards) from the pension fund then you are in dodgy territory as the adviser will be depending on ‘suitability’ of a transfer to get paid.
I am by no means financially naive. An annuity was the best thing for me to do with a pension pot considering all the circumstances so that’s what I did. I agree that they may not be the best choice for all people but they are not bad at giving YOU a safe income till YOU die which is what they were intended to do.
If you can afford to do it, the most tax-efficient way to proceed is to take your 25% tax free, then feed it into an ISA over however many years that takes. That way, you never pay any tax on that portion of your money.
Annuities are really poor value
True, in this abnormally low interest rate environment, annuities are terrible. So are most fixed income investments.
Before, it was normal to invest your pot into a guaranteed annuity to guard against you outliving your savings. Basically insurance against a long and impoverished retirement. Though as with any financial product, you have to reckon it wouldn’t exist if it didn’t make money for the provider.
Chill out people, I’m not about to withdraw all my pension and blow it on fast cars and loose women. I don’t have an advisor at the moment because I don’t need one yet, because I’m not in a position to do anything about my pension. When I’m in a position to do something, my next door neighbor who had his own company, and has done the same thing as I’m contemplating, will give me the name of the person he used, who he highly recommends, and I’ll seek advise off him.
All I really wanted to know is, is the 75% left of my pot/fund taxable if I moved it to a drawdown scheme after taking the tax-free 25%.
I assume you are married. if so you really need to look at the benefits that pass to your wife if you die in your 60’s.
They really are unlikely to be matched if you switch away from your existing scheme.
And a tip. A good financial adviser will tell you not to move. Find one of those, then work the options out with them. They will also probably want a fee to tell you this after analyzing your existing scheme.
The scammers are those who will tell you the first option is to move away without even mentioning stay where you are.
It’s unclear what your scheme is.
You say final salary. That means a set amount of monthly income for life. There is no “pot”.
it is possible to transfer out if a final salary scheme and receive a pot instead. However it is rarely a sensible thing to do unless you know you have a life limiting illness. You have to take financial advice and this is costly – expect 3% of the transfer value.
If the early deaths in your family are from a heritable condition then get tested and see where it takes you. You also need to consider that FS schemes provide a spouse benefit (if you have a spouse).
The other type of pension is “money purchase” or “defined contribution”. With that you have the options and flexibilities others have mentioned. So you can take the tax free cash and keep the…[Read more]
There are circumstances where you can get more than 25% out tax-free.
Generally, this is for older pensions and things like executive pension plans.
You should check carefully that you aren’t in such a scheme.
I had some pension in such a scheme and have found that I can get all 100% out tax-free (wasn’t expecting that). I am doing this asap before someone changes the tax rules. Unfortunately it would require another zero on the end for me to retire on
my friend who are financially naive.
anyone who takes out an Annuity is financially naive.
With an annuity you give a finance institution 100K and receiving 4k a year (taxable), but get bugger all back for your estate when you die. The better way to do it is to take the 100K, invest in a range of bonds and high yielding stock within an ISA, get 5K annual return tax free, and receive the full 100K back into your estate when you peg it. You could take 10K a year and erode your capital, on the basis you’ll be getting your state pension when your 68, and by the time your 80, you state pension and the fuel/tv allowance will be all you require.
Annuities are really poor value
I was in a final salary scheme which closed in 2012. Currently my pot is worth £200,000. In 2 years time that will give me an income of just over £8,000 which is index linked. If I die my wife gets half. A number of my colleagues have just taken redundancy and one of them I know well is 53. He is proposing to take 25% tax free from his final salary scheme and hand the rest to a financial advisor to invest for him. His plan would be then to take out an annuity in about 8 years time, his argument being that his wife would continue to get the same pension rather than half from a final salary scheme if he died. What he doesn’t realise is that at current rates the value of his pot would have to double to give him an annuity that would provide him with the same pension as his final sal…[Read more]
Moving cash out of a final salary is so crazy that it’s the only thing that they stop you doing without getting financial advice.
Also, the way you describe it , it doesn’t sound like final salary. If you retire early on a final salary there is usually a reduction factor in the salary. So someone retiring at 55 gets less per year than someone retiring at 65 on the same salary and same years of service. Also, unless you’ve been with the company since your 20s you’re unlikely to have paid in the maximum years to get the largest fraction of your final salary.
All in all, seek some proper advice. The short answer to your drawdown question is that 25% is tax free and the rest is taxed at you personal rate, like any income.
You do not have to pay tax in moving money from one pension scheme to another.
When you take money out of a pension fund (other than the 25% tax-free) it is taxable, in much the same way that income is taxable. So if you draw down an income you pay tax as though it were income.
Thanks for the replies, the information is duly noted.
I’m not 55 until late 2020, so in no hurry. But with both my Father and Grandfather dying of the same illness, both in their early 60’s taking some or all of my pension pot early, may be a better option for me and my family.
As regards my final salary pension, I’m as far up in our company as I’ll ever want to be, so my retirement pension won’t increase. My “pot” is well into 6 figures, taking the money early could see me and my wife better off.
To answer your question, any pension that you withdraw from your drawdown fund will be liable to the standard rate of income tax (with the part up to your tax allowance tax free). As others have said, be very careful of being caught out by scammers – if you don’t know yourself what you want to do with your drawdown fund it’s best to leave the money where it is.
I left most of my money in my original scheme and took a 25% lump sum tax free plus my personal allowance for that year as I wouldn’t have any other income.
The next year I took my personal allowance tax free and continued to do this every tax year until I’d had all my money.
This worked for me because my withdrawals were my only source of income and I didn’t have more than 5 years worth of money to take.
So sort of a drawdown pension but staying with the original provider.
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