Pension advice

[Psamathe]

...
I cashed it in to pay for a house move a few years ago as not quite sure what £1000 a year would be worth in real money when I retired.

Most pension companies can give online estimates for what your pot would give you as an annuity. Loads of options that again depend on your circumstances so they ask some questions e.g. amount in pot, increase income inline with inflation, smoker, protected (partner gets a reduced income after your death (with limits), etc., etc. Not difficult questions to answer so doesn't take long. Can't remember all the questions but it's more than pos amount straight to annuity income.

Can be interesting to do to help one think about options.

Ian

 

[wiggydiggy]

I used a free money advice service through work, they were able to give me some insight into what pensions I have (3 from different employers, only 1 being paid into currently). I think free services are a good start to help you understand what you have, but I'll be paying someone something this year to give me real advice on which are best to pay more into.

I'm guessing I'll want to pay more into the my current employers plan as they match it, but is it worth adding to the other 2 to hedge my bets I'll need advice on.

 

[Psamathe]

Most pension companies can give online estimates for what your pot would give you as an annuity. Loads of options that again depend on your circumstances so they ask some questions e.g. amount in pot, increase income inline with inflation, smoker, protected (partner gets a reduced income after your death (with limits), etc., etc. Not difficult questions to answer so doesn't take long. Can't remember all the questions but it's more than pos amount straight to annuity income.

Can be interesting to do to help one think about options.

Ian

PS. The online estimates I've done don't ask any personal information. No e-mail, no name, no "where do you live?", no phone number. Totally anonymous. They do ask age (obviously). I would never give any pension info to any online company asking for contact details (e.g. "we'll e-mail you the estimate" - avoid). Plenty of people looking to SCAM you out of your pension pot or take commissions for no extra return. I'll put in a pot amount, age & gender and e.g. inflation adjust but nothing that identifies me.

Ian

 

[Debade]

While you are making you pension decision, I think it would be wise to look for a retirement calculator which will require a spending analysis among other things. There are two that I like. Fidelity has one. Another is Firecalc which may not be useful in Europe but even if not, the questions might be helpful.

Finally, instead of a biking forum , search for a retirement forum. I know there are a few in the States. I expect there too.

 

[PaulSB]

To pick up on a couple of points a good IFA, I've been with the same one for +/-20 years, will not necessarily charge you £1500. Figures such as this are often quoted based on an individual's personal experience. A good IFA will establish your basic position and needs and then quote accordingly. I've paid my IFA varying amounts over the past 20 years depending on the work done. Since retiring six years ago I've been charged £0-400 dependent on activity. It was higher when I was in work.

Re a spending analysis, yes do this in painful detail. Understand everything you spend, I do mean everything. Cash spending is the worst! In the year prior to retiring I analysed our household spending. +/- 20% was in cash - we had no idea how or where this was spent, it was simply money out of the bank into a purse or walket. This will help you understand how much you will need in retirement.

If you choose to work with an IFA this analysis will help him/her understand and make projections on your long-term, that's whole of life, needs. I sit with my IFA annually, she has financial software which projects my position to age 100 and includes any "what if" situation you can imagine. For example if I want to give the kids £10k now she can show me the impact when I'm aged 95.

Yes, you could write your own spreadsheet to do this. How long have you got? How much financial acumen and information do you have?

Keep in mind the tax benefits are not free. The tax is only deferred and you will probably pay some in retirement, very likely far, far less than when working but some of your pension income could/will attract tax.

Be very wary of buying an annuity. This is a commitment and once made cannot easily, if at all, be changed. Making such a commitment at retirement when you hopefully have 25-30 years ahead of you could be a poor decision. The savings in your pension pots are yours, you do not have to buy a pension with them.

Why is an annuity a potentially poor choice? Two points it's a decision based on today's values and a gamble on what will happen over 25-30 years. Secondly you will almost certainly pay tax on annuity income. Why? From April the state pension will be £10600 pa. The tax threshold will be £12570. Therefore any private pension, annuity, or work place pension above £1970pa will be taxable. It may be possible to avoid tax on your pension. If you purchase an annuity, and based on today's state pension and personal allowance, which gives an income above £1970 the balance will be taxable income.

How you take your pension will depend on your total household income. You should take a decision based on all income not yours alone.

At retirement, six years ago, I had a pension pot. My wife was already retired with a small pension. Day to day living meant we needed income from my pension pot but when I reached state pension age we would not need that income. My main choices were an annuity or "drawdown." If I purchased an annuity on reaching state pension age I would have begun to pay tax. I chose to "drawdown" from my funds up to the tax threshold so avoiding tax for four years. Now I've reached state pension age I "drawdown" enough to top up my income to the tax threshold, no more than this, to avoid tax. Currently I cannot see circumstances in which I need to do more than this and will therefore never pay tax on income from my pension fund.

As things stand if I pre-decease my wife I will not need to take an income from my pension fund. On my death the fund will transfer tax free to my estate. I can chose to take income, "drawdown" but don't need to. If my wife pre-deceases me I will need to consider the best way to top up my income from my pension fund.

Let's imagine my wife passes in 15 years time. That's when I need to make a decision on income, annuity etc. not today and certainly not six years ago. Be very wary of annuities and fully understand the implications of buying one at retirement and what use it will be 30 years later.

What I chose to do is very, very simple basic stuff. It's backed up by excellent advice from an IFA, for example our savings have continued to grow throughout the last two hellish years, and I feel secure.

Don't base your decisions on advice on a cycling forum or any other type of forum. Take ideas from them and seek professional advice.

I'm just an ordinary bloke with a pension pot, nothing fancy about it.

 

[Psamathe]

...Why is an annuity a potentially poor choice? Two points it's a decision based on today's values and a gamble on what will happen over 25-30 years....

(I've left my pension pots as pots, still pending any decision) the annuity calculator estimates I have done I've always opted for inflation adjustment (increases in line with inflation). But as Paul says 25-30 years is a long time and inflation is a measure across many aspects in life as personal inflation can be very different from the official measure. Probably particularly true once retired when your spending patterns will likely change somewhat from in-work times. But we're also seeing it at the moment where food inflation is said to be much higher than the official inflation figure, impacting some people far worse than others.

Ian

 

[ren531]

To pick up on a couple of points a good IFA, I've been with the same one for +/-20 years, will not necessarily charge you £1500. Figures such as this are often quoted based on an individual's personal experience. A good IFA will establish your basic position and needs and then quote accordingly. I've paid my IFA varying amounts over the past 20 years depending on the work done. Since retiring six years ago I've been charged £0-400 dependent on activity. It was higher when I was in work.

Re a spending analysis, yes do this in painful detail. Understand everything you spend, I do mean everything. Cash spending is the worst! In the year prior to retiring I analysed our household spending. +/- 20% was in cash - we had no idea how or where this was spent, it was simply money out of the bank into a purse or walket. This will help you understand how much you will need in retirement.

If you choose to work with an IFA this analysis will help him/her understand and make projections on your long-term, that's whole of life, needs. I sit with my IFA annually, she has financial software which projects my position to age 100 and includes any "what if" situation you can imagine. For example if I want to give the kids £10k now she can show me the impact when I'm aged 95.

Yes, you could write your own spreadsheet to do this. How long have you got? How much financial acumen and information do you have?

Keep in mind the tax benefits are not free. The tax is only deferred and you will probably pay some in retirement, very likely far, far less than when working but some of your pension income could/will attract tax.

Be very wary of buying an annuity. This is a commitment and once made cannot easily, if at all, be changed. Making such a commitment at retirement when you hopefully have 25-30 years ahead of you could be a poor decision. The savings in your pension pots are yours, you do not have to buy a pension with them.

Why is an annuity a potentially poor choice? Two points it's a decision based on today's values and a gamble on what will happen over 25-30 years. Secondly you will almost certainly pay tax on annuity income. Why? From April the state pension will be £10600 pa. The tax threshold will be £12570. Therefore any private pension, annuity, or work place pension above £1970pa will be taxable. It may be possible to avoid tax on your pension. If you purchase an annuity, and based on today's state pension and personal allowance, which gives an income above £1970 the balance will be taxable income.

How you take your pension will depend on your total household income. You should take a decision based on all income not yours alone.

At retirement, six years ago, I had a pension pot. My wife was already retired with a small pension. Day to day living meant we needed income from my pension pot but when I reached state pension age we would not need that income. My main choices were an annuity or "drawdown." If I purchased an annuity on reaching state pension age I would have begun to pay tax. I chose to "drawdown" from my funds up to the tax threshold so avoiding tax for four years. Now I've reached state pension age I "drawdown" enough to top up my income to the tax threshold, no more than this, to avoid tax. Currently I cannot see circumstances in which I need to do more than this and will therefore never pay tax on income from my pension fund.

As things stand if I pre-decease my wife I will not need to take an income from my pension fund. On my death the fund will transfer tax free to my estate. I can chose to take income, "drawdown" but don't need to. If my wife pre-deceases me I will need to consider the best way to top up my income from my pension fund.

Let's imagine my wife passes in 15 years time. That's when I need to make a decision on income, annuity etc. not today and certainly not six years ago. Be very wary of annuities and fully understand the implications of buying one at retirement and what use it will be 30 years later.

What I chose to do is very, very simple basic stuff. It's backed up by excellent advice from an IFA, for example our savings have continued to grow throughout the last two hellish years, and I feel secure.

Don't base your decisions on advice on a cycling forum or any other type of forum. Take ideas from them and seek professional advice.

I'm just an ordinary bloke with a pension pot, nothing fancy about it.

An excellent insight into your dealings with pension matters, great to have a different perspective on the tax side of it all, what you have is a more flexible plan but I guess you need to be disciplined with your financial dealings.

 

[Sharky]

By coincidence, just noticed an advert on morning TV, from Standard Life, for people with multiple pensions and offering their services to consolidate them all into one.

May give some useful info if you investigate further.

 

[ren531]

By coincidence, just noticed an advert on morning TV, from Standard Life, for people with multiple pensions and offering their services to consolidate them all into one.

May give some useful info if you investigate further.

Great thanks, I have one with Standard life as well.

 

[sevenfourate]

Going back to an earlier post; my wife fairly recently moved approx £35k from Prudential into her Government NEST pension - so as to keep both in one place (And the fact the Pru one was doing horrendously) - and incurred no fees whatsoever. Straightforward 1 week transfer at the amount the Pru pension was valued at on the day of notified change.

If that's 'normal' or not i can't answer......

 

[CXRAndy]

I stopped paying into my pension 15 years ago. I was with Pearl, who were bought out by Australia life. They kept ramping up their charges, so much so I was actually losing year on year with my pension pot. I moved pension providers, took a bit of a hit with exit penalties from Australia life. Then after several years my new provider started similar charging. My adviser said, stop paying, because it's just wouldn't be worth much come retirement for the amount I'd invested.

 

[Psamathe]

What are the advantages of combining more than one "pot" into a single pot beyond easier admin? Are there benefits from keeping multiple "pots" (e.g. annuity on one, draw-down on another)?

Is the 25% tax free withdrawal 25% from each pot or 25% from the 1st "pot" (which would make a single "pot" better if looking to take the money out cash withdrawal)?

Ian

 

[Psamathe]

... They kept ramping up their charges, so much so I was actually losing year on year with my pension pot....

It is an aspect of private pensions (and a lot of other investment schemes) that annoys me - where those managing the fund take a fixed %age of the invested amount. I'd be far happier if they took a much higher %age of the profits/growth of the fund. Fixed %age of invested amount means they get the same pay however badly they do so hardly motivating. %age of growth/profits motivates then to do a good job and rewards a good job. I would be wanting constraints of on %age of profit/growth e.g safeguards to prevent excessive risk taking.

Ian

 

[AlanW]

An interesting and timely thread this, and I originally posted the below in the retirement thread, but it was suggested I look in here, so here I am!

When I retire from my current role in May this year, it has been agreed that I can stay on and do some odd work as and when required as a zero-hour staff member.

So, in the initial plan was not on touch any of my pension pot until next year, Feb 2024 when I will be 65. That said, I don't think I can manage on what I can earn as doing odd zero-hour work. Time will tell I guess but I suspect that I may need to reevaluate this later in the year.

Then in 2024 taking an income from the pension pot for a year and then enjoying the spoils of the state pension the following year, Feb 2025.

I guess it's the great unknown isn't it and I'm sure that everyone who is approaching retirement or has retired would agree with the burning question, how long am I going to live compared to the pot of money I have to spend?

Live like a Lord for ten years and then live for twenty years....

Its such a huge step after working all of my life and by my own admission, I embarrassed to admit that I do like to spend money

EDIT - Since I wrote this yesterday, my thought process has changed, mainly due to the fact of trying to avoid paying tax, so the thought now is to take a 25% tax free lump sum and invest that and draw an income from that till next year.
I have three frozen company pension pots and one active company pension that I can draw from, still undecided if to draw from one of them or 25% from all of them?
I also looked at merging them all into one big pension pot and while yes it makes my pension more manageable, it comes at a cost in admin charges. So, for the time being they are stopping as separates.

 

[fossyant]

You may find merging has no advantage. We looked at it some years ago, as my wife then worked for a 'wealth management' company, so they looked into it for free. They said there was no benefit from merging my two 'frozen' funds. As always, seek professional advice. Given how close you are to retiring, leave where they are and access the funds you need, and maybe top up with some work if you are getting bored.