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pension 25% now or higher amount each year?
keith dennis
Posted: 03 March 2018 17:02:19(UTC)

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Hi All, so have decided to draw from a smallish self employed pension fund of round figures value of £24000. comes with guaranteed annuity, would pay annual income of £2580, or £1940 p/a plus 25% tax free now (6k), a difference of £640 p/a, equivalent to about 9 1/2 years of the 'extra' pension income . (640x9.5) So, take the 25%, invest it and draw £640 each year to match the 'no tax free option', needing a return of 10% p/a so unlikely, or just accept the higher pension. Other monies are in place, so either option is valid . Any thoughts please, sorry if all that bit long winded ! Thank You
Posted: 03 March 2018 17:21:03(UTC)

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Seems to me this is a lifestyle decision: assuming you don't have a short life expectancy, taking the higher pension and no lump sum seems the best bet to me, with no risk and good return. But if you want the lump sum for some reason and don't need the income, then that's the one to go for.
Alan Selwood
Posted: 03 March 2018 18:33:18(UTC)

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A guaranteed annuity that had its guaranteed figures worked out a long time ago when annuity rates were much higher is likely to be a good deal whatever you decide.

But a few points if you have a wife or partner:
Does it die with you, or have a minimum number of years over which it would be paid (typically they have 5 or 10 year options)? A 5 year guarantee should cost little compared with a 0 years guarantee. A 10 year guarantee may also be attractively-priced.
Does it offer a joint-life and survivor pension option? Again, if the guaranteed rates are attractive, this option is also likely to be attractive, if offered.

If inflation stays low, the 100% pension could be a good deal; if inflation increases but the pension is a fixed-rate one, the 25% lump sum may make more if reinvested in something with income-growth potential, at the expense (naturally) of a lower starting yield.

Horses for courses!
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Richard T on 03/03/2018(UTC), gillyann on 06/03/2018(UTC), Guest on 07/03/2018(UTC), Jim S on 07/03/2018(UTC), Guest on 11/03/2018(UTC), dlp6666 on 11/03/2018(UTC)
Posted: 03 March 2018 21:37:33(UTC)

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Are you a higher rate taxpayer currently ?

If not, consider if you might be by taking the full pension.

Chris Phillips
Posted: 07 March 2018 12:22:41(UTC)

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At retirement I had private pension pot of circa £130K. Financial adviser presented option of annuity or drawdown.

I opted for annuity, enhanced because I am a smoker, joint life, yielding 7% a year.

FA said taking the tax-free lump is a 'no brainer', bearing in mind how long it would take to recoup this amount through marginal increase in pension.

We both agreed that £130K is too small an amount to consider drawdown, bearing in mind investment risk and on-going management fees for investment(s).
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Guest on 07/03/2018(UTC)
Rob Walker
Posted: 07 March 2018 12:40:49(UTC)

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I'd invest in a Corporate Bond fund and shove it into an ISA before / after 5th April. Not absolutely safe but should get a low-risk 4-5% tax free and the capital is still there to draw on if a higher-priority need (eg medical problem) arises later on.
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Guest on 07/03/2018(UTC)
Posted: 07 March 2018 17:31:31(UTC)

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Rob Walker;58350 wrote:
I'd invest in a Corporate Bond fund and shove it into an ISA before / after 5th April. Not absolutely safe but should get a low-risk 4-5% tax free and the capital is still there to draw on if a higher-priority need (eg medical problem) arises later on.

A bond fund - now?
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Guest on 11/03/2018(UTC), dlp6666 on 11/03/2018(UTC)
Law Man
Posted: 07 March 2018 22:22:58(UTC)

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Consider the good prior comments, but do not overlook the obvious: a guaranteed annuity rate of over 10% is very attractive so, absent special circumstances, take the full annuity.
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dyfed on 08/03/2018(UTC), dlp6666 on 11/03/2018(UTC)
Lee Smith
Posted: 09 March 2018 23:37:20(UTC)

Joined: 09/03/2018(UTC)
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Some excellent advic ethere.

There's a lot of free life expectancy calculators online. Google it. They would help with your decision.
Tyrion Lannister
Posted: 25 March 2018 19:02:51(UTC)

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Is it possible to take the 25% tax free sum in parts from a DC pension, say 5% in 5 separate payments?
Posted: 25 March 2018 21:57:34(UTC)

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I'm not sure, but I think you can if you crystallise a fifth each time.
If you crystallise and take less than 25%, then you can't take more later.
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Tyrion Lannister on 25/03/2018(UTC)
Jon Snow
Posted: 25 March 2018 23:44:38(UTC)

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AFAIK you can take 25% tax free when you go into drawdown.

If you don't want to do that, then you lose the opportunity (!) and I think you get 25% of whatever sum you take out tax free and the rest is taxed at your marginal rate. Bottom of page 2.


Some professional advice needed on this one.
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