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Pension Decision
Michael Ward
Posted: 19 February 2018 15:50:55(UTC)
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Hi everyone,

I will be 67 in April and have decided to retire, my question is what to do with my pension pot.

I am married and mortgage free with around two years of cash in the bank I currently draw my old age pension although my wife has another two years to go.

With some health issues I qualify for an enhanced annuity but even so the rates appear to be quite poor, especially if I make provisions for my wife should I die.

My pension fund is £220,000.00, £50,000.00 of which is in stocks and shares and the remainder in fixed interest bank accounts.

Should I take my 25% tax free lump sum or leave it invested? What should I do with it if I take it. can I reinvest it?

Should I put it all into drawdown, or as some have suggested splitting the fund, taking an annuity large enough to cover my essential outgoings with the rest going into drawdown?

Why is retirement so confusing and stressful?

I'm sure you get asked these questions often but any advice would be appreciated.

Kind Regards Mike.

Catch The Pigeon
Posted: 19 February 2018 16:52:32(UTC)
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If you don't need it, don't take it.

By taking your 25% TFC and not spending it, you will need to place it somewhere (ISA - £20K limit) and you will be bringing money into your estate from an IHT perspective.

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Michael Ward on 20/02/2018(UTC)
Jim S
Posted: 19 February 2018 17:24:50(UTC)
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Agree with CTP. Leave your pension alone if you don't need it. I believe its exempt from IHT, also I think (not sure) it could be transferred to a beneficiary pretty much as is after death.
If you have other savings, I would use those first.

170k out of 220k in fixed interest bank accounts (and I think you have an extra 2 years cash on top of that if I understand correctly), and only 50k in equities seems overly cautious to me. I think 20-40% cash is fine in case there's a big drop in markets so you can take advantage of lower prices. But 80% cash, 20% equities will limit your pension's growth. I would consider going more like 60% equities and 40% cash/bonds etc, but maybe doing that over time.


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Michael Ward on 20/02/2018(UTC)
Sara G
Posted: 19 February 2018 17:38:42(UTC)
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None of this is advice of course, but for what it's worth, I think there are strong arguments to take the tax free cash - who knows when a cash-hungry government might reduce the 25%, or remove it? You could then feed it into an ISA... Between you and your wife you have the ability to put in up to £80,000 (£40K before the end of the tax year and another £40K from April). Any income you receive from an ISA is currently tax free... You would not need to invest it straight away, if you were worried about markets falling. Of course the tax arrangements for ISA's might also change in future, but I suspect they would be more likely to reduce the annual allowance than tax income.
3 users thanked Sara G for this post.
Michael Ward on 20/02/2018(UTC), john brace on 20/02/2018(UTC), Tim D on 20/02/2018(UTC)
Keith Hilton
Posted: 19 February 2018 18:25:27(UTC)
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Sara G;57554 wrote:
None of this is advice of course, but for what it's worth, I think there are strong arguments to take the tax free cash - who knows when a cash-hungry government might reduce the 25%, or remove it? You could then feed it into an ISA... Between you and your wife you have the ability to put in up to £80,000 (£40K before the end of the tax year and another £40K from April). Any income you receive from an ISA is currently tax free... You would not need to invest it straight away, if you were worried about markets falling. Of course the tax arrangements for ISA's might also change in future, but I suspect they would be more likely to reduce the annual allowance than tax income.


I tend to agree with Sara, although it does depend upon your ultimate goals for the money e.g. if you wish to leave an inheritance, or draw down the capital over time. As stated above, if there are IHT considerations then it might be better to not take the 25% tax free lump sum from the pension, but note that the tax situation will change when you reach 75, so there may not be any advantage in doing this.

Perhaps work out what level of income you require first, then work out the best way of achieving this and minimising income tax in the process. Also, remember that future income tax rates could be significantly higher than the current 20%.
2 users thanked Keith Hilton for this post.
Michael Ward on 20/02/2018(UTC), Mark Johnston on 20/02/2018(UTC)
philip gosling
Posted: 20 February 2018 06:14:06(UTC)
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If you take 25% tax free allowance it immediately becomes part of your estate if you die it could be taxed under Inheritance tax rules. In your pension tell trustees who you would like to inherit in trust and under 75 your pension is exempt inheritance tax. IF you die after 75 the income when taken by your beneficiaries becomes liable to income tax at their own tax rate. If you've grand children they have their own personal £11000 tax allowance so could receive all your pension gradually tax free over the years. You seem to have a huge percentage in cash and should think about at least 50% in equity and 50 % in cash - I have more but have a good work pension so will not need more income from my isas and sipp
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Michael Ward on 20/02/2018(UTC)
xcity
Posted: 20 February 2018 10:12:08(UTC)
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A lot of 'advice', but very little knowledge of your cirtcumstances.

  • Potential effect, or not, of IHT is probably very relevant.
  • So too is your income tax situation post retirement. Only having a state pension as income will usually mean that you have not taken advantage of all your personal allowance (0% tax rate).
  • 2 years cash is slightly ambiguous. Is that 2 years of supplementing pension, or 2 years forgetting any other income. Presumably this will change when your wife is entitled to her pension.
  • Do you anticipate any major expenses in the future?
  • Do you aim to leave money to family etc when you die, or would the ideal outcome be you and your wife spending it all?

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Michael Ward on 20/02/2018(UTC)
Keith Hilton
Posted: 20 February 2018 10:48:17(UTC)
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One other point is that you don't necessarily have to take the whole 25% tax free lump sum in one go. You could either crystallise just part of the pension, say 50%, or take an income as a series of Uncrystalised Fund Pension Lump Sums (UFPLS), where each lump sum has a 25% tax free element.

This may be dependent upon what options your current pension provider allows and any associated costs.
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Michael Ward on 20/02/2018(UTC)
Michael Ward
Posted: 20 February 2018 10:51:50(UTC)
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Many thanks everyone for all your very helpful information.

It is far better than all the "advisers" that keep ringing me with their companies " best deal you'll ever get" mantra.

I have taken on board your comments and have a much clearer idea of what I am going to do now.

Kind Regards Mike.
2 users thanked Michael Ward for this post.
Sara G on 20/02/2018(UTC), Tim D on 20/02/2018(UTC)
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