Starting the process of accessing your DC pension

[oxoman]

@Mazz use your pensionwise meeting wisely, make sure you have all the facts and figures ready to hand as it makes it so much easier. I'm currently sorting a DB pension out which is a little harder to sort out. I thought I'd get an annuity but have been advised against it and its suggested use the 25% then the remaining money put into a drawdown fund that works for you. It would seem better tax wise this way especially if still working. Good look sorting it out.

 

[ianrauk]

Can someone clarify. With an Annuity you can't carry on paying into the pension, but with drawdown you can, up to £10,000.
Is that correct?

 

[Mazz]

When I took my pension I only took the lump sum. I then took an annual drawdown as needed to supplement my wife's pension until I reached state pension age. At this point I stopped the drawdown, I'm now considering an annuity or other form of income. Plenty of ways to skin a cat, a good financial adviser will be a great help.

As for the wedding I completely agree. I only offered this as a consideration, no criticism intended and I hope none taken.

No worries at all mate, no criticism taken. I appreciate your comments.

@Mazz use your pensionwise meeting wisely, make sure you have all the facts and figures ready to hand as it makes it so much easier. I'm currently sorting a DB pension out which is a little harder to sort out. I thought I'd get an annuity but have been advised against it and its suggested use the 25% then the remaining money put into a drawdown fund that works for you. It would seem better tax wise this way especially if still working. Good look sorting it out.

You're not the first person to advise against annuities, a few other people have said the same.
I know of a few people who were also advised to do what you did (i.e. withdraw 25%, access the rest via a drawdown).

 

[figbat]

@Mazz use your pensionwise meeting wisely, make sure you have all the facts and figures ready to hand as it makes it so much easier. I'm currently sorting a DB pension out which is a little harder to sort out. I thought I'd get an annuity but have been advised against it and its suggested use the 25% then the remaining money put into a drawdown fund that works for you. It would seem better tax wise this way especially if still working. Good look sorting it out.

Pensionwise can only advise on DC pensions - I had a call with them approaching my retirement and they could only talk about the relatively small DC pension I had, not the large DB pension I had accrued.

DB pensions usually payout until death - are you cashing in the DB pension in order to buy an annuity? DB pensions are usually the gold standard, often paying a pension to your spouse on death too.

 

[T4tomo]

Can someone clarify. With an Annuity you can't carry on paying into the pension, but with drawdown you can, up to £10,000.
Is that correct?

Not exactly. There are maximum annual amounts you can pay into any pension, linked to your earnings that apply throughout your lifetime*.

If you access your pension through a flexible drawdown, you then trigger the MPAA (money purchased annual allowance) so can only get the tax advantages of contributions up to £10k per annum thereafter. Taking the 25% lump sum only doesn't trigger the MPAA.

If you buy an annuity with a specific pension pot, you can still contribute to another pension pot, subject to normal rules * above and with no MPAA.

Mind you, if you had bought an annuity that suggests you didn't particularly have much other earnings, so might not be able to contribute much anyway.

 

[Dorset Boy]

Can someone clarify. With an Annuity you can't carry on paying into the pension, but with drawdown you can, up to £10,000.
Is that correct?

Annuity - that pension used to buy the annuity is transferred to the annuity and so no longer exists, so no further contributions to that plan(s), but you can still pay into another pension.

Drawdown - if you just take the PCLS, and no takable income, the contribution limits to pensions are unaffected. If you take any taxable income, then you are retricted to £10,00 pa contribution for evermore. The contributions can go into the drawdown plan or another pension.

Under drawdown you do not need to take all the PCLS in one hit.
Under an annuity, if you don't take the PCLS at outset it is lost.

Annuities from security but no flexibilty. A level annuity cuurently provides about twice the sustainable level of withdrawal that a drawdown plan can offer.
Drawdown offers flexibility, but carries ongoing investment risk. Take out too much, particulalry early on, and you will run out of money. It also needs constant review.

Most pensions taken out pre-2015 don't offer drawdown.
No all annuity rates are the same, and if you have shortened life expectancy due to health or lifestyle you can get a higher rate.

Bottom line is, take proper financial ADVICE. The guidance serrvices have a place but cannot advise you.

 

[PaulSB]

You're not the first person to advise against annuities, a few other people have said the same.
I know of a few people who were also advised to do what you did (i.e. withdraw 25%, access the rest via a drawdown).

To date I'm also someone who advises against annuities, which is why I've followed the drawdown route.

Our circumstances are changing which is causing me to reconsider, stress reconsider, an annuity. My wife is terminally ill, in a few months the household will lose her two pension incomes leaving me with the state pension plus a survivor's pension. My pension pot has grown to almost the level it was when I retired and took the 25%, annuity rates are around 7% and there are suggestions the stock market is peaking. It could be a very good time to take value via an annuity.

My final decision will be based on the advice of our financial adviser.

 

[Mazz]

Thanks for the reply @PaulSB and I'm sorry to hear of your personal circumstances.

 

[Mazz]

Pensionwise can only advise on DC pensions - I had a call with them approaching my retirement and they could only talk about the relatively small DC pension I had, not the large DB pension I had accrued.

DB pensions usually payout until death - are you cashing in the DB pension in order to buy an annuity? DB pensions are usually the gold standard, often paying a pension to your spouse on death too.

Any idea why they don't advise on DB pensions?

 

[wakemalcolm]

Any idea why they don't advise on DB pensions?

They don't advise on anything. They give you guidance and leave you to make up your own mind.

 

[Mazz]

They don't advise on anything. They give you guidance and leave you to make up your own mind.

OK, I'll rephrase that - Why don't Pensionwise give guidance on taking money from your defined benefit pension?

 

[Alex321]

OK, I'll rephrase that - Why don't Pensionwise give guidance on taking money from your defined benefit pension?

Because there really isn't anything to talk about with those. Most of them have a lump sum element, but you often can't change that, and you then just get what it is, there is nothing you can do to alter the amount.

The only time there is really anythiong to mention is the ones where you can vary the lump sum, and the amount of pension then varies up or down accordingly.

 

[Bonefish Blues]

I have just varied things rather by requesting a TFLS whilst also combining a free standing AVC in the same company's scheme as part of the TFLS. It really does pay to look in detail at scheme rules (I'd many years previously bought extra DB entitlement using the taxable portion of a redundancy payment - because I looked. Nobody else had done it previously)

When they sent me the final retirement options they had left this option off, but fortunately my IFA and I remembered it had appeared on one of the earlier quotations I had requested when I was considering the possibility of taking the pension earlier. That delayed things by several weeks.

Of course it's early days since I only requested this 3 or so weeks ago, once I had received the full numbers & options, and the Pension Administrators (the country's largest, I believe) did not have an up to date form for my situation* - something my IFA had to point out to them, so I scribbled my numbers on their form with their approval, once they'd accepted it wasn't fit for purpose in my scenario.

Oh and they didn't send me a necessary form to approve the transfer of the AVC funds across to the main account so they could be combined, so that came a week later.

This rather continues the theme of financial institutions looking shiny on the outside, but being very very variable in terms of their knowledge of their own products, and also their service to their customers.

On a brighter note, the institution which administers my SIPP has now stopped its regular data breaches when it was processing my monthly drawdown payments. Again, astonishing that one had to point out that putting identity identifiers and open financial amounts in an email was not compliant with the terms of the GDPR.

It sounds like I have it in for the industry and I guess I do, but it's based on mine & my wife's experiences of it (via 6 or 7 institutions) at a time where it's vital that everything is clear and administered correctly. OTOH when a company gets it right, it shines out like a little beacon, something I've also acknowledged in other posts.

*Lifetime Allowance was abolished before I started talking pension incl. tax free cash so it didn't apply to me, but they were insistent the it did...

 

[Mazz]

Because there really isn't anything to talk about with those. Most of them have a lump sum element, but you often can't change that, and you then just get what it is, there is nothing you can do to alter the amount.

The only time there is really anythiong to mention is the ones where you can vary the lump sum, and the amount of pension then varies up or down accordingly.

Nice one mate, thanks for the answer.

 

[PaulSB]

I would like to ask opinions here in case there are questions or thoughts I haven't come up with. As above my wife is terminally ill, all too soon the household income will reduce by 62% as her two pensions will no longer be paid. This is not the financial disaster it appears. I have the state pension (+SERPS), a private pension that I don't currently access (I did before reaching pension age) and I will receive a survivor's pension. I won't know the value until I am the survivor! My FA foresaw this eventuality and ensured we had adequate life cover on Mrs P.

The above is changing things and my view on how to use my money. There will be:

State pension (supplemented by SERPS)
Survivor's pension (probably small)
Pension pot
invested savings
Life insurance pay out

To date my view has been to protect the pension pot and when we have needed additional cash taken this from invested savings. Income from my pension pot is taxable, from the investments it isn't. Clearly to date this has been the tax efficient strategy.

My view is now swinging round. Annuities are high, at 70+ I would hope to get +/- 8%. I believe on my death anything remaining in my pension pot becomes taxable which reduces the benefit to my children. I'm wondering if the best option now is to take an annuity from the pension and pay the tax and protect the invested savings and life insurance pay out via a tax efficient savings/investment scheme?

My final decision will be based on my own views in consultation with my FA in whom I have complete faith. I'm very interested to hear what others say as there could well be points I haven't considered.