Ball-park pension money question

[SomewhereOnlyIKnow]

Approximately what lump sum and monthly figure could you expect from a £250,000.00 private pension.
And do private pensions ever ‘run out’ or do they pay out for the rest of your life, however long that is ?

Do you mean a SIPP (or other defined contribution) pension 'pot' of £250K?
If so then whether it runs out or not depends what you do with it. If you want the guarantee that it won't run out you can buy an annuity. It's difficult to say what you would get for this as it depends on many factors e.g. do you want inflation protection, spousal benefits, your age, health etc. That said, it would be a 4 figure annual sum, not 5. If you want to learn more about your circumstanes see www.hl.co.uk/retirement/annuities?theSource=PCGAA&Override=1&adg=G+ANNG+CLU&gclid=EAIaIQobChMI97n_yprU9QIVibbtCh3J_AHqEAAYAyAAEgKmnvD_BwE

Very few people buy annuities now because of the woeful amounts being offered. Instead people tend to use drawdown, which means you leave your money invested and then take out as much as you want to live on each year. This comes with the risk that your money will run out, especially if there is a stock market crash/period of poor returns. As a general rule many people work to around 3-4% as a 'safe' drawdown amount each year but that depends on what you are invested in and how much risk you are taking. You can play with a drawdown calculator here www.which.co.uk/money/pensions-and-retirement/options-for-cashing-in-your-pensions/income-drawdown/income-drawdown-calculator-making-your-money-last-awvp49g8uq6l although be careful about the assumptions that they are making, the reality will almost certainly be very different from the assumptions that they make.

I thought you could only draw down one tax free lump sum, I didn’t realise you could draw down more than once ?

Have a look at the Pete Matthews meaningful money podcasts - v helpful to understand the complexities

There are a number of online calculators that you could play with to find out, depending upon age at retirement etc.
Yes you could have a shortfall - depending upon life expectancy.

@SomewhereOnlyIKnow

I thought you could only draw down one tax free lump sum, I didn’t realise you could draw down more than once ?

I think you are confusing two things here. Drawdown is a means of accessing your pension. There's nothing in the rules on pensions that limits the number of times you can drawdown, though you would also have to check what your provider allowed you to do. Drawdown is explained here www.which.co.uk/money/pensions-and-retirement/options-for-cashing-in-your-pensions/income-drawdown/what-is-income-drawdown-apsqg6y8pg57

On the tax free point. One option is to take 25% of your pot tax free in one go. You can do this however you are accessing your pension but of course it means that you have a smaller pot invested so you should consider your own circumstances. At the other extreme you could choose not to take a 25% tax free sum in one go and instead have 25% tax free in each drawdown.

Of course that's assuming all of the rules stay the same!

Hang on, is this question related to this thread www.mumsnet.com/Talk/legal_matters/a4461668-Divorce-letter-stopping-pension-draw-down?msgid=114488861#114488861 ?

If so I really think you should talk to your solicitor.

You can take out up to 25% tax free in as many instalments as you like and then pay yourself 4 to 5 % a year to live on. (That’s how my DH and I doing it but with much bigger pots). So If you didn’t take a cash free lump sum you would have about 12k a year. Remember you’ll also get your state pension and people tend to spend more in the earlier years of retirement compared to later years. Or you could take 62.5k out tax free and then drawdown a smaller amount each year, approximately 8.5k.

Thanks for your replies.
Do retired people try to keep their income below the tax threshold, or is that income too low ?

An income below the tax threshold is likely to be very limiting for most people. You can see broad thresholds of minimum, moderate and comfortable income here www.retirementlivingstandards.org.uk and that is based on research on the spending of retired people. But of course it will depend on the individual's circumstances. A person who owns a well-maintained and insulated home in a cheaper part of the courntry is going to find it easier than someone renting a run down home in London.
At a very general level it sounds as if that level of pension pot would give a very basis standard of living before the state pension kicked in. If the person had a full current state pension (many older people will not as they will be in the transitional arrangements) and a paid off home then they could get towards a more reasonable standard of living but would still have to be careful.
But it all depends on the individual circumstances.

Of course it also depends on whether the person is single or not. A couple with two full state pensions are likely to be in a much better position than a single person as two can live more cheaply together (as reflected in that research I linked to).

@SomewhereOnlyIKnow

Thanks for your replies. Do retired people try to keep their income below the tax threshold, or is that income too low ?

Whose pension is this £250K?

If you’re entitled to a full state pension, that’s likely to be at 67 (depending on your age now) and it’s approx £9300. Given that the tax free personal allowance for most people is £12500, then yes - some people do draw down from their pension only that amount that keeps them under the threshold.

But that only works if £12500 is enough. For one person in a couple - maybe. For a single person less likely.

But if you intend to draw down before you’re 67 and have no other income, you can take more of it before hitting threshold for tax.

It sounds like you need to do some general reading around pensions.

You might also find we can help more if you explain your aim rather than just a specific question with no context.

And what’s happening about the divorce? That’s very relevant.

I am guessing that the pension in question is her husband's and the OP is trying to work out what a reasonable division of the finances would look like but that is only a guess. Possibly the OP is trying to work out what her own pension would look like if she divorces.

If it related to divorce then it's a question best answered by her solicitor who knows the full cicumstances.

You see, you all keep saying to ask the solicitor, but your replies to two posts contradict what he says.
So perhaps what I actually need to do is ask another solicitor.

In what way?

@SomewhereOnlyIKnow

You see, you all keep saying to ask the solicitor, but your replies to two posts contradict what he says. So perhaps what I actually need to do is ask another solicitor.

But you’re asking us a Pensions question. A solicitor, whilst very well versed in the law, is not a Pensions specialist. My own divorce solicitor referred me to an IFA with regards to the fine detail. They could do the legal stuff around a Pension Sharing Order but are not qualified to make an actuarial calculation for a Cash Equivalent Transfer Value.

If you are asking your solicitor questions such as, “does my pension last forever?” and, “do most people try to withdraw under their tax threshold?” then you are absolutely asking the wrong person.

As I said, if you actually explain yourself, you’ll get more help here.

I know a lot about pensions and a bit about divorce - can’t even tell here whether it’s your pension you’re talking about!

@SomewhereOnlyIKnow

You see, you all keep saying to ask the solicitor, but your replies to two posts contradict what he says. So perhaps what I actually need to do is ask another solicitor.

OP just to be clear, the posts I have put on this thread were on the assumption that you were talking about your own pension and were just thinking about what could be done with a £250K pot at retirement.

It sounds as if you might be in quite a different situation and are considering a pension sharing order for a pension that might already be in drawdown. If that's the case then it's a technical area and that might explain the difference. For example your solicitor might have mentioned that if the 25% tax free amount has already been taken by your H and the remainder is then shared with you then you won't be able to take any more tax free (I am fairly certain that is correct).

As Cocomarine says you need to explain the situation more fully for people to be able to give helpful replies.

Ultimately we're just people on the internet. If I were you I'd go back to your solicitor to clarify what the advice is and change if you don't feel confident in it. You might want to read around pensions a bit to make sure you've got a clear understanding of the position and I hope the links above are helpful in doing that.

Not only is @Mia85 correct that the recipient of a credit from a PSO cannot take a 25% TFLS, it actually doesn’t even matter whether the original pension holder had done. HMRC draw the line sometimes, for simplicity. It is assumed that the 25% has been taken if it is hasn’t.

I would expect a solicitor to know that, and if they did - I wouldn’t expect them to share it with you in a professional capacity. I doubt their insurance covers them for given off pensions advice, a whole other qualification.

I’ll admit I’m curious what has been contradictory to what your solicitor has said!

*wouldn’t expect solicitor to know

it actually doesn’t even matter whether the original pension holder had done. I didn't know that Cocomarine (I am not a financial advisor!). Out of curiosity, do you know whether it matters whether the original holder has started taking the pension? i.e. is the recipient under a pension sharing order always in a position where they cannot take a TFLS?

I’m also not an IFA, just a random on the Internet who enjoys Pension chat 🤣

My understanding is that if the pension hasn’t been crystallised, it can be split and both parties can now take a 25% TFLS (either in one lump sum, or as you described above 25% from each draw down).

If the pension has been accessed, you can still get a PSO - but the ex spouse receiving the credit can’t get the 25%. I read via Aegon Q&A for advisers that it’s just assumed that the original pension holder has already done so. Even if they haven’t. I guess it’s just not seen as a particularly good use of tax payers’ money to have HMRC dedicated resource to tracking down what’s been claimed on each pension!

It’s way too specialist for a solicitor to advise on!

From @SomewhereOnlyIKnow other threads, it sounds like her STBXH is a decade older, so she’s had her solicitor send a warning letter telling him not to get any ideas about taking the 25% TFLS now and spending it, because she wants it untouched ready for divorce financial agreement. A letter can’t stop him, but an injunction could - and I guess for most people a letter telling them that (a) an injunction could be sought and (b) a court would consider it deprivation and account for it in the split - would be enough to make them hold fire.

Sounds from another thread like OP might be a nurse - if she has an NHS pension it might be considered more valuable than this one (assuming it is her STBXH’s) anyway. And with an age difference putting him at retirement age, she could be awarded less of it due to having more time to build more pension on her on right. That’s more what I’d expect a solicitor to advise on.

Thanks for all of that @Cocomarine !

Yes I was wondering whether the solicitor had mentioned it in relation to the timing of the divorce rather than actually purporting to give any advice on pensions. It sounds from what you have said that that is probably the case.

Anyway, looks as if it is just us talking about the finer points of pension sharing orders now! If you do come back and give us more info OP then very happy to discuss your situation further if it'd be helpful.

Thanks, but like you say I should ask a solicitor.

@BedtimeHorlicks

Thanks, but like you say I should ask a solicitor.

But we’re not only saying that! We’re also saying you should speak to a pensions specialist, such as a pensions qualified IFA. But before doing that, definitely follow the links you were given and do some basic learning on pensions 👍🏻