Private pension… can you spend it all before state pension age?!

[MarshaMarshaMarsha]

This is just theoretical but if you have a private pension you can access at 57, can you retire and use it as income to last the 11 years until state pension age?! And at 68 you then just live off the state pension?!

This is all theoretical as I’m sure the state pension will at some point be means tested but am just pondering?!

Thank you for this… it’s a workplace pension not a SIPP (I think they are different?!) Do your points still stand?

thank you in advance! And thanks to everyone for the comments.

Yes, it's my understanding that you can do this with a workplace pension too.
You'd need to research whether there are any guaranteed benefits you might lose by doing so, but often, even with such arrangements, income guarantees are essentially an annuity from the current pension provider at the workplace, and you'd secure higher guaranteed rates on the open market (which you have a right to do - the current provider cannot insist you stick with them for an annuity).

There are many flexible options to choose with annuity - you can select the time-frame, whether you want to take a 25% lump sum upfront, you can opt for part of the pension pot to be returned at the end of the fixed term, whether to choose a fixed return income or one that increases each year. All of these things obviously affect the level of income you're offered - (for instance if you choose to have the income increase each year, you'd start with a much lower income figure). Once you've made your choice with the purchase of the annuity all these things are then fixed in stone going forward - you can't make changes thereafter.

Another point of interest - if you decide you didn't want to downsize later in life, you can also use equity release on your property to purchase an annuity for a guaranteed income. It's called a Purchased Life Annuity (PLA).

www.pensionbee.com/uk/pensions-explained/retirement-planning/when-should-you-buy-an-annuity#:~:text=Can%20I%20buy%20an%20annuity,which%20is%20right%20for%20you.

I have, used private pensions to to cover from 55 to state pension. I have income from property so ur willl be enough.

I asked about equity release on here a while back after a friend mentioned it would be an option and everyone seemed to think it was a really bad idea.

It’s a bad idea if you want to leave an inheritance to someone. As you don’t, it wouldn’t be the worst idea, it’s something to look into.

...and following on from my last post ... you could even use equity release if you did downsize, to purchase an annuity.

Many people are understandably fearful of equity release because of previous sharp practices that left buyers in a perilous state of affairs. However it is now tightly regulated with a number of safeguards, and has undergone something of a transformation.

It has numerous advantages for those without heirs. It guarantees you and your spouse can reside in the property in your lifetimes, but it utilises the property's capital to create additional income you can enjoy. As there's little or no capital ownership of the property, it cannot be used by the local authority in assessment of care home fees, should they be needed (however the annuity is counted as income in any assessment).

It could be seen as the ultimate route to make use of every last asset whilst you're still here to enjoy it. Much depends on the rates you're offered at the time, of course. They vary considerably depending on the age you apply, your health, additional benefits for your spouse, the provider you choose, and particularly the prevailing interest rates at the time of purchase (the higher the better for annuities).

However, don't assume if you obtain a set of quotes that's it - rates fluctuate over time, much like mortgage rates. It's also important to understand any potential pitfalls. I'm not usually one for suggesting a financial adviser, but for these products a specialist broker can be very useful in finding the best rates and additional enhancements for your needs and avoiding any disadvantages you might be unaware of.

I'm not a pension expert by any means, but I do think they are overlooked products that have had a poor reputation in the past that's no longer deserved. For some they can be a very good option.

Thank you for that advice. So much to think about!

My posts seem to imply that annuities are mainly useful for those without heirs. However, I've heard a number of reports of those with larger pension pots utilising them as a vehicle for reducing inheritance tax liability (this might be relevant for some, if not OP).

Essentially some of the pension pot is used to buy an annuity, which then translates into surplus income which is gifted to their heirs. Regular gifts made from surplus income are generally exempt from Inheritance Tax immediately and don't require the seven-year survival rule. The gifts must be part of normal expenditure, made from income (not capital), and leave enough income to maintain the giver's standard of living.

This can reduce the IHT liability overall, but clearly there will be income tax to pay on the annuity at the appropriate rate. However, if the recipient then uses these cash gifts to invest in their own pension, it will receive the tax relief uplift and then partially, if not wholly, negate the effects of the income tax charge levied on the annuity. It's an intriguing tactic!