My brother has recently retired to Northern Spain with his shrew of a spanish wife. They're bought land and having a house built, don't ever, ever do that!
It's the right thing to do in my opinion. The money is always there to use and is tax free but put it in an annuity and that annuity will have to do well to negate the 20 or 40% tax you might pay on income from it, depending on circumstances. If the annuity is your only income then it might well work if your personal allowance makes the first £12k tax free.
My view was a simplistic one. Pension pot was shrinking/flat lining ,like most have been since the scamdemic. So, it made sense to pull the 25% out, buy a bond and pay the tax on the interest. I only take a modest drawdown ATM, so the tax on the interest made on the NS&I bond is negligible.
In case we are talking cross purposes, the plan would be take the cash and then use the rest to buy the annuity, not the 25%.
My only consideration on taking 25% early is that affects my tax allowance afaik on cutie pension contributions, so I won’t get 49k I think it may be as low as 4k pa. C20k pa at the mo how’s in (mine and employer) and if I keep this job it will until I move on/retire.
And this is pretty much it in a nutshell. Any decision you make should depend on your personal circumstances, size of pot & other finances and desires for the future. What may only have upsides for one may only have downsides for another so try not to be swayed by other's decisions unless you are in exactly the same set of circumstances. One thing for sure is that what ever choice you make there will be summat to pay. Whether that is to a financial advisor, or in time & stress working it out for yourself or in tax. And I don't mind paying for 2 of those 3 and in the latter option it's not as though the state doesn't need the money. Personally I what I like about the money is not that it buys me yet more stuff I don;t really need but rather it buys me time. Time to then do what I want to do, pottering about in the garden, refurbing the V-Raptor, learning to play the piano, refitting kitchens & bathrooms. You know doing stuff that work always seemed to get in the way of.
To quote Red from the Shawshank Redemption "These walls are funny. First you hate 'em, then you get used to 'em. Enough time passes, you get so you depend on them. That's institutionalized" Sometimes it's difficult not to be defined by your job & career. But the obits aren't going to say he was pretty good software test engineer.
No - you can take the 25% and still pay into a scheme... BUT the minute you take ANYTHING from the 75% then you are limited to future contributions of £4,000 a year... at least that was how Pension Wise Explained it to me and what I plan to do for the next year..... will start setting it in motion in around 2 weeks.
Spot on. You can get more money, but you can't get more time. You defo need hobbies and interests. I've had friends and relations retire, do the whole new kitchen and world cruise thing, only to go back to work out of boredom, or as instructed by the wife. Health is also a critical element, get yourself checked and no drinking before eleven... You don't want to die and leave it all to the enemy!
Agree with @Andy Bee and @Nelson. When we are younger we think life has no ending. As we age a bit the reality kicks in, that No it isn't. As we approach retirement we realise times is getting short and no amount of money will buy more of it. Don't keep the money for a rainier day, tomorrow is NOT promised. I see no downside to taking 25% tax free at 55 but think it through carefully and make your own decisions. It might not be right for you depending on your circumstances.
Ps You don’t have to take the 25% as a lump sum if you don’t want to. You can drawn down a portion each month if you want.
And this is where circumstances do make a difference - I might have done the same if I was 55 but as I am 62 it suits me better to use all my pot to buy an annuity. This provides an income less than my personal tax allowance which combined with other liquid assets & investments bridges the 5 year gap until I receive the state pension. But it does of course allow me to buy that time & retire now. Sure, I won't be living in clover but I'm pretty sure I don't want 2 cruises a year, a new car every 3 or a collection of pastel coloured jumpers that I can stylishly drape over my shoulders whilst wearing deck shoes and looking into the middle distance with my arm round the missus....
The only downside to taking the 25% is that you miss out on any growth on that which is also tax free. Can't take it with you into the afterlife though...
Unless you draw the 25% down in “bits” on a regular basis and hopefully you get growth on the amount left in
It’s a subject I know little about, as yet, but what percentage of people buy an annuity nowadays? I thought/believed Annuities were a thing of the past and pensions had moved on, in a different direction, no???
They only took a dive because for years the interest rates have been kept so low (1 to 2% some say artificially) so the return on an annuity would be poor and the market could outperform them. But since the Liz Truss pigs ear and increase in interest rates, to around 10% or more, they have become a lot more attractive. Remember that years ago when the interest rate were consistently around the 12/15% the return on an annuity would be easily better than other investments. And, it has to said, in the latter case it was a lot more difficult investing in the market than it is today.
There is no 'one size fits all' answer. Annuities have struggled in recent years because of poor growth and low investment returns but that isn't the case at the moment. The real problem in all this is that many people think they will be able to retire and have the same income off their pension as they did from their salary when they worked. That just isn't going to be the case.
