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  • Retirement fund draw down

    Hi all, new member here. I am starting to think about retiring early, I am 57. I was wondering if anyone has had any experience of retiring and taking money from any retirement investment that they may have – so drawing down a monthly/yearly payment. I have set up a meeting with my financial advisor to find out what the best options are, ie most money for least impact, but thought I would seek real experiences from others.

    Posted by botty1963
    • Reply by Dollycon

      I took early retirement at 55-7 years ago. 100% the right decision for me. I have to wait another 4 years for the state pension. I’m not rich but I’m free

      • Reply by Dreamyboy

        I did exactly the same thing – quality of life came into the equation – I had a father who died a year after retirement and when given the chance thought I would at least give myself a few more years. Am relaxed and doing my own thing, lovely not to have the pressure of work eh?

        • Reply by Dollycon

          I’ve had so many friends who said that they’d just ‘work an extra year’ only for their partners to die just after they retired. Yes, work is a huge part of your life but retirement is better

    • Reply by Anonymous User

      GrahamL’s summary is the nuts and bolts of it.
      The only other point I’m aware of is the valuation of defined benefit schemes (final salary pensions). Getting them valued and converted, if that’s your plan. Beware high levels of fees and scammers. These schemes are worth a lot more than you put in, so get good independent advice.

      I like Dollycon’s point though, not rich but free. I did it 4 years ago, best decision ever

    • Reply by PeteB

      Like some others here, I did this recently. I left my full time job with a decent redundancy payment and then switched to my drawdown from my pension late in 2020.

      The background is that I had two pensions; one was a Defined Benefits pension from employment in the 80s and 90s and the other was a Defined Contribution pension. I went to an independent financial advisor and, with their help and advice, we transferred them both to a single pension pot which gives me maximum flexibility. My particular issue was a very large outstanding mortgage and the only way I had to pay it back was to use my 25% tax-free lump sum.

      I opted to transfer out of my Defined Benefits for 3 reasons; I needed it to be able to pay off the mortgage, I wanted to have a higher income than it would give me in the scheme and I wanted to have a good chance of leaving a decent investment for my wife and children.

      The big drawback of Defined Benefits is you lose the original capital when you die; the big plus is that you have a guaranteed income that no market forces or government policy can take away. In the end, my numbers told me that I should take the risk. Apparently many applications to exit a Defined Benefits scheme are turned down by the regulators who review them very carefully.

      Graham’s breakdown of the tax situation is good but there is an alternative. In the appropriate pension scheme, you can do what is called crystalisation (I think that the right word!). What happens is you take the 25% lump sum only as you need it and the rest continues to grow (or fall of course) with the market. Example: If the Pension Pot is 100K, the tax-free sum is 25K. If you need, say 5K immediately, you take that tax free and the remaining 20K might grow over the coming months and years. This all means that the 25% MIGHT turn out to be more than 25% of the original amount invested. Sorry if I made a meal of that example!!!

      My advice is simple. Find an advisor that you trust (preferably through word of mouth) and ask questions until you really understand the pros and cons of each option. A good IFA won’t mind how long it takes to explain the concepts.

      I will tell you who my IFA is privately if you wish. They turned out to be really good (although we can really tell if you’ve only used one of them, I’m not sure!!).

      Good luck!
      Pete

      P.S. I am not an expert either – this is based on my own experience

      • Reply by Nancy-Anne

        Can I ask, is that 25% per annum? I am 3.5 years off being able to access my pension, and find the whole tax part confusing. Thanks

        • Reply by PeteB

          Hi Nancy-Anne

          It’s 25% tax free of the TOTAL pension pot. For example, if your pension pot is £100,000, you can take up to £25,000 as a tax free lump sum -and then invest the rest (£75,000) to create a pension income.

          You can potentially get more than 25% tax free using “crystalisation” (requires an IFA to set it up!). If you had the same £ 100,000 pension pot, you might only take 5% (that’s £ 5,000) perhaps to pay off a credit card and then You invest the remaining £95,000 and, if later on, that grows to, say, £ 120,000, you can then take 20% of that tax free (£24,000) – so in total you got £29,000 tax free.

          The ultimate flexibility if you don’t need a lump sum at all is to invest the whole £ 100,000 and then take, say, monthly payments that are partly tax free – using the 25% over many years to reduce your tax bill.

          Remember that this may NOT apply to an older Defined Benefits company pension – that’s the sort that most companies offered until, perhaps, the 1990s. I had one of them and it limited my tax free sum to a much smaller %.

          To be honest, now I’ve been through it all, I understand it very well but it’s difficult to explain – especially in a short note like this. My best advice is to always consult an IFA before taking the plunge! I can recommend Reeves (reevesifa.com) but of course many other IFAs are available!

          Keep asking questions until it all makes sense 🙂

          Cheers – and good luck!

    • Reply by botty1963

      Hi all, many thanks for taking time out to reply. I spoke to my finance guy today and the options are quite positive.

      About 3.5 years ago I took redundancy (jumped at the chance as I had a few years service and good terms) and I had a defined benefits pension which then became frozen. However, I later took the pension money and transferred it to a retirement fund managed by one of the very big UK wealth management companies – it was invested 2 years ago.

      To be honest the amount I was able to transfer was far more than I had anticipated, and even with the stockmarket crash last year, I have still made around 9% PA over those 2 years so very happy with how my money is being managed.

      So this afternoon I had a call with my FA and the options were quite positive. Assuming of course that the investment continued at the same rate of increase as the last 2 years (which of course is always the unknown), then I could take an annual lump sum (of which some is taxable) which I could then draw down on each month equivalent to what I currently earn, and the equity would at the end of that year would be back to what it was at the start. So effectively I would be able to retire on the interest made on the investment and have the same lifestyle.

      So whilst I haven’t decided anything and there are always risks, and I’m not sure whether I am yet ready to retire, it has opened my eyes to the options.

      • Reply by Puffin007

        Depends if you enjoy your job or not or want to do something you always wanted to do instead while you have the opportunity, health and breath etc. It’s a good position to be in for sure!

        • Reply by Dollycon

          I loved my job but the older I got the higher the risk of work related injury. Health v wealth? no contest

      • Reply by GrahamL

        That’s a great position to be in so congratulations on the choices you previously made to get you here. As others have said, quality of life is better. Simply knowing you have that choice makes life so less stressful.

        • Reply by shimmyalishake

          …..having choices definitely makes life less stressful…..completely agree!

      • Reply by Chrissy71

        Hi re the financial crash last year – my pension pot reduced by 25% in April/May which was a shock but now is pretty well back where it was. ‘We’re all in this together’ but actually we aren’t are we? There are some very rich people still travelling, holidaying and (fortunately for the rest of us) still investing.
        I retired early as mortgage paid off, using savings.

      • Reply by HelenO

        Please, please do not make any plans on the assumption that your fund will return 9% on a regular basis!
        Your FA is negigent if he encourages you to believe this!
        Also, I see from below that you have not even got your state pension quote and checked your NI record – more negligence on the part of your FA if they did not advise you to check this.
        Also, you will not get that pension until age 67 – a full 10 years from now.

        (I am early retired – but drawing on an inheritance/savings and not my pension as yet!)

    • Reply by lifecoachingandcolours

      Hello, I did exactly that when I was without income for a few years. I arranged to down the 25% tax free and lived off that and occasionally supplemented it with smaller draw downs under the tax threshold until I had finished my retraining and started earning again. Good luck with whatever you decide to do. Tricia

    • Reply by ali.munday

      I took early retirement at 52. Paid off my mortgage with the lump sum. Took another job for a year but had to give up due to my son’s health. Have a small monthly pension income which I have supplemented by taking interesting and local part time work. Give this up at the first Lockdown and haven’t regretted it, although I have to watch the pennies. Am healthier and happier than I have ever been. But don’t forget to pay your National Insurance contributions if you haven’t already paid full stamp.

      • Reply by botty1963

        That last sentence is really interesting, so if you retire early and no NI is being paid, does that mean that when state pension kicks in you won’t get the full amount? I remember my dad didn’t get a full pension as he was a contractor the last few years and although he paid his NI, he wasn’t getting the employer NI paid so that had an impact.

        • Reply by ali.munday

          You need to check. I have a Civil Service pension so didn’t pay full state contributions although I worked full time for 35 years. So if I want a full state pension I have to pay the remainder of my NI contributions. It’s cheaper to do that than to get a lower state pension. Worth checking your situation. https://www.gov.uk/check-state-pension

        • Reply by botty1963

          I will check that. I have worked since 16 years old and I am now 57, all those years in full-time employment so should be ok.

        • Reply by Jkn

          Depends if your pension scheme was Contracted Out or not. I have worked mostly full time for 44 years, but still won’t get a full pension because some schemes were contracted out. Information online re NI contributions and state pension forecasts is misleading and inaccurate, so get a written forecast to check.

        • Reply by Chrissey1

          I’m 57, worked full time since 16 and took a year out abroad and I have reached maximum required NI contributions. Easy to check this on line and I’d urge everyone to do this

        • Reply by Dollycon

          You need 35 years N I contributions for a full state pension. I retired at 55 so have the required number of years even though I won’t get the pension until I’m 66

        • Reply by Tricia28

          I have 36 years NI contributions but will not receive the full £175.20 weekly state pension ( current rate).
          In fact I will only get £135. This is because most of my working life I was in a contracted out scheme which means that your state pension will be reduced.
          I can pay voluntary contributions to improve my weekly rate but because of my age (65) I can never achieve £175.20 per week. The best I can achieve is £160.
          So please do not assume that because you have the full requisite number of years contributions that you will get the full weekly rate.
          Always check your state pension & options available at https://www.gov.uk/check-state-pension

          Hope this helps someone.

        • Reply by Lindaxyz

          You need at least 10 qualifying years NI to get any state pension.

          you have to have 35 qualifying years paid NI to get full new state pension.

          But You will get a proportion of the new state pension if you have between 10-35 qualifying years.

      • Reply by Greyone

        Is it not true as well that your NI is also funds other things so you need to keep up payments until you retire, even if your state pension is sorted?

    • Reply by OMTMSA

      Work out your expenses a month. Err on the side of caution. Does your income exceed this? If so, go for it. I had a council pension and took the max lump sum. I can then leave this to my spouse/kids. Otherwise the pension dies with you, unless you have a spouse to leave a reduced pension to. Amazing how much you can live on if you need to. Some people love their job but there is no better feeling than waking up and knowing you can do what YOU want to do everyday for the rest of your life..

    • Reply by Charlieboy

      Hi I am new to this site but would like to offer my experience on drawdown. I am now 72 and have a small private pension as well as my state pension. I decided on drawdown from my private pension for a number of reasons.
      I did not like annuities as at present they are poor value and secondly they finish when you die and the pension company keeps what’s left.
      With drawdown you can take a 25% lump sum tax free at the start or not if you wish. Then drawdown monthly an agreed amount, mine is about 5% per year. I have been drawing down now for 7 years and my pot is only about 10% less that I started with, which is quite good considering the state of the stock market.
      Finally when I die my wife will continue to receive the monthly income. Then when she dies I have nominated my daughter to receive the balance, which after taxes she can either take it as a lump sum or reinvest it for a pension for herself.
      I am not any sort of expert but this is my experience to date.

      • Reply by NigelS

        Hi, my understanding is that anything left in the pot after your death can be left to your spouse if they survive you, your children, or anyone else nominated by you, and that this amount does not form part of your estate for Inheritance Tax calculations (i.e. it’s tax free).

    • Reply by kboissiere

      My biggest confusion is being able to access what is a fair cost fee ,for the transfer of a Defined Benefit Pension ,

      • Reply by botty1963

        I transferred my DB pension and it didn’t cost me anything, there were no fees. And I received much more than I expected in the transfer, however, that’s just my situation and I expect that it can vary depending on which company you use for any investments and who manages the current DB fund.

        • Reply by Philip from London

          It is mandatory that you take financial advice from someone qualified before you can transfer from a DB pension – that usually costs +£3,000. Did the adviser do it for free?

      • Reply by Chrissey1

        I paid a fee for my pension transfers which were deducted from the fund. There are also ongoing charges, however my funds have performed really well- better than I imagined. A good adviser is worth every penny as overall you will be better off

    • Reply by mel

      Hi, thanks so much for your comment and glad to hear you’ve spoken to your financial adviser to find out the best options for you, with positive results. For anyone who’s not sure exactly how drawdown works, we recently published this article explaining some of the advantages and things to watch out for https://restless.co.uk/money/retirement-planning/how-pension-drawdown-works/.

    • Reply by alam

      Annuities (with defined contribution pension pots) are pathetic .. I found I need to live for another 35 years to empty out my own money…which means these companies rake it all when u pass away;
      So it is very clear for me:
      drawdown the 25% post 55; recycle to a ISA to get regular income from this and annually drawdown maximum tax-free allowance (15k£ roughly now i think) for subsequent years to squirrel it out to other investments and empty the retirement pot out .
      Watch out to miminize your tax every year (if you happen to have any other taxable income )

    • Reply by Divad Rellew

      I retired at 46, that’s 12 years ago. My advice is to try to maintain your capital lump sum and allow it to rise in line with inflation, but then well invested monies should allow you to cream off the excess as you need it. Get a good IFA who will pay attention to your attitude to risk and invest your money accordingly. My investments have risen by an average of 8.5% per annum, and if I had just stuck the cash in a high interest account I would be struggling by now.

    • Reply by Moira2

      Hi I have already taken early retirement at 60. I decided not to take a lump sum. Check to see how many years you have left to pay on your National Insurance. I have 2 years to pay to get the full Pension which I will do. It has been over 2years since I made the decision and I am loving it. Hope this helps a little bit. Moira

    • Reply by Kev Fit

      i can’t add anything new to comments above but don’t take you TFC if you dont need it and whatever you decide to do. hold your nerve when the markets wobble as they surely will.

    • Reply by Paul_

      I left full-time work at 39, having taken a decent redundancy payment. I then did part-time work until I was 49, at which time I was lucky enough to be able to take my Civil Service pension at 50, not the usual minimum of 55.

      In another 18 months, I intend to cash in a couple of smaller pensions which I’ve calculated, along with inheritance, will leave me comfortable until I can take the State Pension at 67.

      There are lots of if’s & but’s but, if the State Pension keeps increasing at the rate it has done in recent years (£7/week each year & that’s taking into account two huge economic upheavals – Brexit & Coronavirus…) it will be approx. £280/week when I’m 67, in 13 years’ time.

      Some may say that inflation will have eroded the value of £280 but, thinking about it, I don’t recall 2008 (13 years ago) prices being that much cheaper than today’s. Optimistically, the State Pension could be more than £280/week which, I’m sure most will agree, isn’t a bad non-working income.

      Everybody’s circumstances are different, of course.

      I’m single, child-free, no mortgage. These factors might affect other’s choices although I say, you never know what’s round the corner! So many times, I’ve known people continuing to work into their 70’s, possibly to pay a mortgage, kids’ university fees, debts, etc, then they finally retire but barely have a year of until they – or their partner – dies…

      You can still make money, even into old age, but the richest person in the world can’t afford even one extra second of life, so why waste time doing a job – or anything – you don’t enjoy? 🙂

    • Reply by Lou 3

      I looked into mine i am just 58 and it looked like I would loose out unless it was on medical grounds which has to be approved
      So find out how much you will loose if you do first remembering how long it will be until you get your state pension

    • Reply by mksakp1

      I retired early at 62. Didn’t have a massive pension pot, but I took the 25%tax free and bought a 4 year annuity with the rest. The rest which will pay me an income each month until my state pension date. This wouldn’t suit everyone as I also have a private pension from my late husband which lets me live comfortably. Definitely don’t regret my decision but do check with a financial adviser first. GOOD LUCK.

    • Reply by Dollycon

      I retired at 55 with an nhs pension, 11 years before my state pension is due. I can’t pretend that it’s easy but I’d rather live like this than have the stresses of work. I usually spend 6 months/ year abroad and absolutely love it

    • Reply by Alison1

      Hi,

      I recently took an some of my pension, when I was 55 a few months ago, the financial advisor made it very straight forward. I also wanted to share with you I have found a little part time business, working for myself , from home and also tops the pension up nicely too. Hope this is allowed to share? any questions just ask. there is a 2 min video to watch …https://uwstories.co.uk/Retirees.html Thank you Alison

    • Reply by Melly61

      Interesting reading of everyone’s experiences. Don’t forget that Pension Wise can give you a free appointment to discuss your options at retirement. In addition always use a regulated financial advisor they can be found on fca.org.uk

    • Reply by Mindblower

      Hi I retired last July. I have invested my pension & so did a lot of my colleagues who left at the same time. I currently have my Pension tied up with a company called True Potential UK The company I worked for Rolls-Royce plc wouldn’t let anyone just invest in any old investment company.

    • Reply by Philip from London

      to get an idea yourself, try http://www.guiide.co.uk . It only takes ten minutes.
      Just for disclosure, Guiide is my website.

    • Reply by KevinGP

      Hi everyone has different circumstances and pension pots.
      I strongly advise getting professional advice.
      Few points to consider
      – tax burden
      – if you crystallise the benefit (take the pension) you may limit the amount tax free you can continue to pay in. In some instances the annual allowance reduces from 50k to 4K if you take any taxable income from drawdown. This assumes you would continue working.
      I am not a FA so this is not advice just comment for you to seek professional advice.

    • Reply by Greyone

      I’m 59 and pondering the same question; so I’m going to have a good read of this. My only bit of advice is that not all IFAs are equal so pick yours with great care.

      One i spoke to was obsessed with the 25% tax free lump sum because he would earn 1% commission on it for the duration; so i gave him up promptly.

      Another one i spoke to took all the information and gave me little . After turning them down i had a letter form my DB pension scheme saying they’d asked for the ‘transfer out’ value. I was livid with that and glad i turned them down.

      So pick yours wisely, go slow and good luck. any news on your results would be welcome here I’m sure.

    • Reply by Sue V

      You need to tell the tax office once you have your 25%. If you are earning a salary, the draw down is taxed at whatever your rate is.

    • Reply by Sandiford

      I retired at 55 my financial adviser gave me a form to compete so they could see the best funds for me to use compared to the risks I was happy to take. I initially thought I was not a risk taker but completing the form worked out to be financially beneficial.

    • Reply by Lizzi-Beth

      This is all very encouraging. I retire in 2 weeks time, I’m 55 and in Education. I’m looking forward to feeling free and having the choice to do what I want each day. Best of luck everyone with your retirement options.

      • Reply by Dreamyboy

        Beth, if you are anything like me and had to revolve your life round the school holidays ,retirement is lovely!

    • Reply by Enrique

      Hi

      Just a twist on retiring from me….
      66 this October and in full time employment as an engineer for long as I wish .
      I drew on 2 private pensions several years ago from companies I moved on from.
      Yes I pay 20% tax on them aa personal allowance set against my full time income – what a bonus to enjoy the remuneration whilst still working.
      I have applied now for my state pension in October with 48 years national insurance years accrued this gives me an additional £9000.00 plus a year paid over 13 months not 12….
      Also taxable at 20% but when one draws the state pension whilst working ,further NI contributions cease so one balances the other!
      When one finishes full time employment its a huge void I consider and so a few more years at work will supplement and keep the brain active too.
      Following the extra couple of years at work Covid will have become more acceptable across the Globe for me to travel solo and something I should have done in my youth.
      Go for it people as life begins at 60 plus when the kids are settled and its ‘me time’.Don’t dwell on passing away as its inevitable but in the meantime lets party out on the highway of that which we have worked so hard for…..
      Best of Luck

      Ric

      • Reply by NigelS

        You are really lucky that you have a job that you obviously enjoy – I’m envious!
        I’ve just turned 60 and any day that have to continue working is a day too long!! However I have a list of things I want to do whilst I’m still able, so I don’t think I’ll be bored when I do finally pack in work. There’s just no point doing it right now until travel is easier and the uncertainty is less.

    • Reply by Nikita

      I’ve not retired formally however, I’ve taken 2 tax free lump sums, one to enable me to move home and become mortgage free, another to fit a maximal solar power installation on the roof of my home and minimise my energy bill. This way my cost of living is so greatly reduced that I don’t need full time or continuous work and there’s no risk of losing my home. My pension provider recommended switching 30% of my pension fund out of equities into fixed interest but I have opted to keep it in equities for the time being because they are doing very well, in fact, so well that I’ve taken out 0% interest credit on my credit card and stumped up the 2.9% fee because the cost of borrowing is much less than the growth opportunity of leaving the funds in my pension for longer.

    • Reply by Anne C

      I finished work in January and waiting to process a civil service pension in November when I reach 59. You need to be aware that taking a work pension early may well mean a reduced pension so get a quote from your provider. I am going to use the 25% tax free lump sum to supplement the reduced pension until state pension kicks in in 8 years time, but by taking the reduced pension it will be tax free as below the limit for married person allowance. So 8 years of tax free income! If your partner is a tax payer don’t forget you can transfer some of your allowance across to make the most of the allowance.

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