The budget proposals to free up pension pots. Right or wrong?

Rose- I had a very small AVC ( about 10k) - I took the maximum at the time (2k) and from the rest get about £63 a month ( after tax). When I started the AVC I thought the returns would be better but it was my choice and I could just have saved the money ( out of taxed income) and paid tax on the interest over the years. It would be interesting to do the sums and see what would have been best- but that's always the gamble with any form of investment. I hasten to add that I have two occupational pensions plus state that keep me going!

Granny, it had to be converted into an annuity alongside my pension and I have always paid tax on it as well. A very small amount each month reduced even further.

I had to take an annuity a couple of years ago. Annoying. However, I wonder what sort of return you would get buying the max. Premium Bonds over say 15 years, compared to a monthly income. Of course there is always the chance of a big win and you still have the capital.
I have a reasonable amount of PBs, but would need a multiple basic win every month to match the Annuity. X

It's always been possible to take small pension pots as cash. It's called trivial commutation. I think it's now anything up to £18000, but going up to £30000 from tomorrow.
Nice to know that £30000 is considered trivial by the govt. It's more than the average person earns in a year.
However, you do have to pay tax on it, apart from 25%.

jen If someone works for 40 years, and the government has put in 25% of the value of the pot through tax relief, and you take into account the rise in the value of equities over that time, then they do not have to have saved very much each month to have £30K in a pension pot.

Looking at it another way, if you bought an annuity for £30K, you would probably be looking at an income of £1 -2K a year from it, at the most.

I do know that, Jane. I am speaking from experience, where I had not enough in my pension pot and took it as trivial commutation nearly five years ago. It was in Legal anf General, and they managed to reduce the value of my pension pot by 50% in the last five years before I retired.
The same was happening to my husband's which was run by Rothschild's, so we put his into an environmantally friendly one, in the belief that we'd rather they lost it than Rothschild. As it was, in the last five years his went up substantially, even surprising the financial adviser.

Jen I don't know when you retired, but I tend to the view that it was Gordon Brown who reduced the value of my pension pot, rather than Legal & General

It's their money - they have paid in over a lifetime - they are entitled to do as they wish with it.

We have a small pot of money (legacies from parents and small pension lump sums - only small as OH had to retire very early because of ill health and I had opted out for part of my career whilst raising family) which is quite simply in an online building society account. Financial purists would throw up their hands in horror and mutter about ISAs, but we do so for several reasons:
- simplicity and lack of hassle
- simple tax form filling in - only the one thing to note.
- saving on need for accountant to deal with tax matters.
- accessibility - if one of us needed an operation, or the children had needs that we might be able to help them with

It suits us - we know so little about financial investments that it is easy for us to be taken for a ride and be led into things that we do not understand and that might let us down, either in terms of returns or of accessibility.

We have enough to live on with our two pensions - we do not live extravagantly (no smoking, drinking, cruises) but we live happily and with a degree of peace of mind, which is priceless.

DJen - you could only draw it as a lump sum if that was the total of your pension pots. If it was, say, an AVC alongside a firm's pension you could not.

I have a few premium bonds and was at one time calculating the interest rate I received on them in comparison to a savings account. It seemed quite reasonable and comparable for a few years but it is now below even a poor ISA. But You Never Know!

Mishap, if your money was in a cash ISA then the government could not have any of it and you wouldn't have to declare it on your tax form. Of course, the rate of interest may be worse on a new ISA than on your present taxable account minus the tax.

Ps I would emphasise a cash ISA if you are totally averse to risk.

Unfortunately, I fear that some people are going to be drawn into riskier investments when they are able to withdraw their pension pots.

If you are persuaded to buy a Lamborghini at least you would still have it ....

I have a vision of future generations of pensioners rolling up to food banks in Lamborghinis.

Aka

Yes, I know, Rose, but that was the total of my pension pot. I had been persuaded, by an exteacher, to withdraw it from the teacher's scheme and put it into a personal pension.
I had been self-employed for twenty years and after my husband's accident we did not have any spare money to put into my pension pot.
I rely on his, as he earned more, therefore could save more.

I don't know about anyone else, but I couldn't even get in and out of a Lamborghini

I think they are bad for the environment, Galen.

DJen, DH was persuaded to withdraw his pension pot when he left a firm and to reinvest it with L&G by a financial adviser. After a few years of dismal returns I fought on his behalf for it to be reinstated with his old firm's pension scheme, and very luckily, after two years of wrangling, they accepted it back.

rosequartz- you were extemely lucky for that to happen. Many financial advisers deserve to be hanged, drawn and quartered.

It took much persistence and a very kind and sympathetic person in that section of his pension fund administrators. Although it's only a small pension it is probably twice what it would be had it been left with L&G.

What's interesting about the pension rules from now is that the pension companies do not appear to have been told about it. I thought that any chancellor always discussed such fundamental changes with the groups affected - apart from the electorate, that is.
They seem to have been caught on the hop.
I am pleased that I do not have to decide what to do until my husband would have reached 70 years old. By then the rules will be more organised and the problems sorted out. And a new chancellor/ government.

just a thought,
When this Law comes into force I suspect that Pensions will be looked on as disposable income,we will then be in a position to pay for our own care.
The disreguard I expect will be the last 10k,that is after they have taken your home as well.
Reminds me of an old Soldier I met some years ago, he was about 76ys old.
He lived in a rather expensive Flat and was hopelessy in dept,I said to him what went wrong,he looked at me and said, Mick,I never expected to live this long

Sorry I was meaning that the individual is better off not having to buy an annuity for small amounts, but the annuity pot will suffer. Undoubtedly advantageous to be able to take these small amounts out if we have mortgages etc to pay off.

I have a distant cousin who put his life savings (he's in his 50s and had accrued about half a million) into the hands of a chap that defrauded him. Promised fantastic returns...
Bit of a surprise to see the cousin being interviewed on News at Ten one night after the court case.

Jess I remember hearing a woman on the radio who had put all her savings (about 450K) into a some scheme that promised ridiculous returns and she lost all her money. No-one with any sense would have touched it with a barge-pole, but people can be greedy.
The old adage 'If it sounds too good to be true, it probably is' should be rule no 1 of Finance for The Unwary

These are the reasons why my savings are in an online BS account with full compensation rights if they go under.

The first thing that I intend to buy is another car but it will not be anything flash as like Galen I have problems getting in and out. Anyway, a Lamborghini is a bit heavy on petrol.