Pension advice

[Stu-nph26]

My old man is retiring in May and has a private pension, it's not a huge sum buts he's been told he can draw down 25% tax free and reinvest the rest at 6% (this seems very high to me I need to check maybe he got the figures wrong) with the Prudential. He wants to take the full lot but will be hit with 40% tax. is there anything he can do to minimise the tax, like drawing it down every year to stay under the 40% tax bracket for example? Any ideas?

[Stu-nph26]

TooMany2cvs said:

He can't take the full amount out of a pension once it's in there - not least because it's income he wouldn't have been taxed on in the first place.

He needs proper independent financial advice.

Ok great he has someone from the Prudential coming out but I guess he needs someone independent

[Stu-nph26]

Thanks guys this is really helpful he's worked all his life and has no idea about this stuff so I just want to make sure he doesn't lose 40% to the taxman. Best options looks like 25% now and draw down the rest at 20% year on year until he has it all

[Stu-nph26]

Ozzie Osmond said:

Why does he want to "get it all out as quickly as possible"?

He lost a really close friend just after he retired and worries the same will happen to him so wants to enjoy it as in his words "you never know what's round the corner"

What's he going to do with the money once he's got it out?

Not much really just put it in an ISA or something instant access

Will he have other income, for instance State Pension?

He's 65 in January his only other income will be state pension

What's his age? When does/will his state pension start?

65 pension starts May 2017

Married? Does the other half have an income

Married to my mam who currently recieve state pension they have no debt own own home etc

?

[Stu-nph26]

TooMany2cvs said:

The guy from the Pru can only sell him Pru products.

Yea I know it's more about what option to chose at this stage than which product

[Stu-nph26]

JulianPH said:

In that case he is simply getting it of one thing and putting it into another. I can't see the benefit in paying any tax on that if the money is not needed for something specific.

If there is no debt to pay down why doesn't he take his tax free cash and then draw an income from the balance?

I don't know the sums involved with the pension but if he took the income at say 4% or 5% (after the tax free cash had been deducted) would that also all be tax free (if his only other income is the state pension)?

Remember, its not like it used to be. If he is not going to buy an annuity then the money is always there to be withdraw at any point. That is very different to what happened to his friend.

Great advice I think that's what he'll do I didn't realise he can withdraw it at any time. He could even take X amount each year up to the 40% tax bracket if he wanted.

[Stu-nph26]

Ginge R said:

It'd depend too, on his estate planning measures. Understanding the regulation is one thing, applying it is another. If he doesn't need the tax free cash, why take it out of a pension (where it may, or may not, be performing well) anyway, and drop it into something financially harsh, like a crappy cash ISA? Is it better off where it is for the time being, or does he have a good use for the money?

He can take fillets of tax free cash (say, 5% at a time) as income if he wants. I'm not saying it's the right thing to do, but certainly something you could both consider and if need be, reject. One benefit to keeping as much in the pension as possible is that it's an incredibly benign tax 'wrapper'/environment in which to have money.

Don't forget, he doesn't have to draw from it until he has 'had it all' out. Sure, it's nice to be buried with a quid left in the bank, and we all want our parents to have a chilled and comfortable retirement, but having a modern pension doesn't mean it dies with you, hence my first point about estate planning/Inheritance Tax. edit: It depends on circumstances of course, and that caveat is important, but a safe drawdown rate at the moment - for many people - is c3.75/4% from the value of a fund.

Edited by Ginge R on Sunday 25th September 13:51

Great advice Ginge I think the 25% is for him to enjoy a few holidays etc but I think you're right about the remainder might be worth keeping it where it is and taking fillets as and when he wants

[Stu-nph26]

Ozzie Osmond said:

^^^ You're on the right track.

Cheers just need to talk him out of withdrawing the lot and taking a 40% hit

[Stu-nph26]

Ginge R said:

Ask your adviser about dripfeed drawdown. Remind your dad, having it outside the fund is potentially a bit like your money going outside in a winter blizzard, wearing just shreddies. It has to be somewhere until its used, so why not keep it suitably invested in the pension.

Ok will do what is a drip feed draw down just a holding account with instant access?

[Stu-nph26]

Ginge R said:

Here you go..

http://www.professionaladviser.com/ifaonline/adver...

.. hope it's of help. I think I'm right in saying all providers worth their salt offer it, to those who have simple needs.

Edit: Hope that's not behind a wall. If it is, just search 'pension dripfeed drawdown' and scroll down.

Edited by Ginge R on Sunday 25th September 20:56

Thanks Ginge

[Stu-nph26]

OK so spoke with a nice women from the Prudential who has offered a low-risk drip down fund which estimates a return of around 4% based on historic performance. The only stumbling block is a 3% setup fee is this typical and to be expected?

[Stu-nph26]

Ginge R said:

Is it a simple personal pension? In the old days an adviser could typically charge that, but a provider charging it for an unadvised service is a new one on me. Is the 4% after ongoing costs and charges?

Yea he's changing from a medium risk investment to low risk but remaining with Prudential. As far as I know it's just a regular personal pension he's taking 25% now and the remainder into this investment

[Stu-nph26]

Ginge R said:

I've just refreshed myself with the thread. Someone 'came out' and it's they who are charging 3% - my assumption - and they're also reducing risk by doing a fund switch. I'd have him make a phone appt with MAS or TPAS. If his needs are straightforward and simple, does he need to pay 3%?

http://www.pensionsadvisoryservice.org.uk/ask-us/P...

https://www.moneyadviceservice.org.uk/en/categorie...

Thanks mate I will give them a ring if we can avoid the 3% they are charging for basically order taking then I would like to.

[Stu-nph26]

Ginge R said:

Is it a simple personal pension? In the old days an adviser could typically charge that, but a provider charging it for an unadvised service is a new one on me. Is the 4% after ongoing costs and charges?

So I have a full breakdown of costs from Prudential

Product charge 0.45% every year
Investment charge - 0.65% every year

Advisor charge - 3% (This is for movement to the pension income account)

All of they above are mandatory, optional charge is ongoing advisor charges of 0.5% per annum

Does this look right to you Ginge I questioned the 3% and was told everyone would charge this? Or something similar but she seemed very uncomfortable when I questioned her around this.

[Stu-nph26]

DoubleSix said:

Can we summarise this thread as man needs financial advice but doesn't wish to pay for it?

More son looking out for his dad who has worked his a off for 50 years so he doesn't get ripped off. And thanks for your input he's more than willing to pay the going rate just trying to establish what that is

[Stu-nph26]

DoubleSix said:

What do you think it should be?

Considering the women from the Pru has offered no financial advice my dad asked for a low risk Pot she's basically taken his order combined with the fact they get an annual product fee and investment charge I don't think there should be any "initial advisor" charge. But as I said that's just my opinion hence asking for advice to make sure he isn't getting ripped off

[Stu-nph26]

FGB said:

One thing will be for sure - whatever the Pru are offering will not be the best for your dad - it will be the best thing for the Pru !

That was my worry thanks I'll speak with an IFA tomorrow she did say the 3% is standard in the industry then started to back peddle when I questioned her.

[Stu-nph26]

FGB said:

http://www.thisismoney.co.uk/money/pensions/articl...

Interesting bit in this;

"Prudential
Do they allow one off pension withdrawals?
Yes for both new and existing eligible customers but some customers with older legacy products may need to transfer to the Prudential Flexible Retirement Plan to be able to access their funds.
There are no fees for transferring to the Flexible Retirement Plan from older Legacy products however annual management and fund charges apply and these may differ to your current legacy contract."

Very interesting thanks for sharing I'll look into this.

[Stu-nph26]

DoubleSix said:

I wouldn't necessarily disagree with that!

But funny how these sorts of clients go back to a service that ostensibly offers advice only to be shocked when there is a fee. Why not go and do it yourself online if it's not worth a penny of someones time?

OP - do you appreciate the regulatory risk that advisers expose themselves to is not necessarily any different regardless of whether you think your calling the shots or not?

Yes, stop wasting the young girls time and go and speak to an independent (and be prepared to pay them, as is only right).

Do you work for the Pru or something. I'm not wasting anyone's time other than your own I'm very aware of the risk I'm also more than willing to pay for a service when that service is adding value, I'm very skeptic all the Pru are adding enough value to justify a 3% fee if this offends or annoys you I make no apologies.

[Stu-nph26]

I'll speak to an IFA tomorrow and report back thanks for the help everyone.