A reader has written in with a question about what to do with a small pension pot that they don’t want to put into an annuity with Scottish Widows. As managing pensions over 75 can be complex, especially when wanting to avoid annuities and minimize tax implications, we consult Ollie Hill, financial planner at Quilter, for expert advice.
The problem
Scottish Widows have said they want me to put my pension plan into an annuity now I’m 75.
I don’t want an annuity.
Therefore they suggested I move to another provider (despite on their website saying they took pensions up to 99 but this might be because my policy is an old one).
So I’m looking to find a provider of over 75’s pensions.
Taking out the money in a lump sum, which I would like to do, incurs heavy tax.
We are only talking about £30,000.
What are my options?
The solution
Navigating pension options at 75 can be challenging, especially when you want to avoid annuities and manage your tax liabilities.
So we asked Ollie Hill, financial planner at Quilter, for some (free) guidance on this for you.
Firstly, Ollie wanted to give Scottish Widows a fair hearing – pointing out it’s important to understand why Scottish Widows is suggesting an annuity.
“At age 75, some pension schemes have rules that encourage or require you to buy an annuity. An annuity provides a guaranteed income for life,” Ollie highlights. But, he adds, and as you yourself know, it’s not the only option available, especially if you prefer more flexibility.
So, as Scottish Widows suggested, moving your pension to another provider might be a viable option.
Many pension providers offer flexible drawdown plans that allow you to keep your pension invested while drawing an income as needed.
A drawdown pension allows you to withdraw income from your pension pot while keeping the remaining funds invested.
“This option provides flexibility and control over your pension funds. You can adjust the amount you withdraw based on your needs and investment performance. But the amount you have can fluctuate with market performance,” says Ollie.
Just switching provider will not incur heavy tax liabilities, he adds – it is the withdrawal of funds from your pension that will create the liability and so strategy and financial planning can be hugely effective here.
When looking to switch your pension provider, start by researching providers that offer flexible drawdown plans for those over 75.
One decent option is Pensionbee.
The plan they have aimed at your circumstances is the Pensionbee 4 Plus plan. This allows withdrawals, is actively managed to reduce volatility, and in terms of growth seeks to match the sustainable withdrawal rate of 4% – and it has done well during recent periods of volatility in achieving that.
All details are here https://www.pensionbee.com/uk/plans
The important thing, though, is to shop around. Compare different pension providers’ fees, investment options and customer reviews to find the one that is the best fit for you.
A holistic financial adviser like Quilter can help with this, whilst also ensuring any other wealth you may have is also working towards your goals and objectives.
You may also want to explore taking the £30,000 in a lump sum. “However, this might incur a tax,” Ollie cautions, echoing your own concerns.
Normally, 25% of your pension can be taken tax free, with the remaining 75% taxed as income.
“If you take the entire amount out in one go it could push you into a higher tax bracket for that year,” Ollie points out – though this can be corrected by contacting HMRC.
Laura Miller has been a financial journalist for more than 10 years, and was on staff at the Telegraph before going freelance in 2019. Her experience includes hosting podcasts and panels, and she writes for the Times and Sunday Times, Daily Mail, Mail on Sunday and the Sun, as well as trade titles. She now lives by the sea in Aberystwyth, west Wales.
