I'm going to retire very soon and just want my pension pots to pay me a regular monthly amount. What do I do?
15 March 2021
Question by Gordon
I'm going to retire very soon and just want my pension pots to pay a regular monthly amount. I'm not considering annuities due to poor rates. I don't want a big lump sum at the start so I don't really want drawdown. I would like regular monthly UFPLS payments. I have pension pots with 3 providers but none will offer this and have not explained why when I've asked. I talked to AJ Bell and they do offer this so I'm going to transfer all 3 across to them and in a few months get a regular UFPLS payment set up. So why don't the mainstream providers (aviva, Halifax, Scottish Widows) offer UFPLS?
Answered by Pete Matthew
Hi Gordan. It sounds like you have things pretty well sorted out. UFPLS payments avoid the need to set up a drawdown account, and 25% of each payment is tax free, as you know. You might get some issues with the taxable portion being taxed incorrectly when paid out, and while the tax usually sorts itself out as things settle down, it can be a pain getting wildly fluctuating amounts for a few months.
One alternative is to shift everything in to drawdown, but as you say, this would make all your payments taxable and you would lose the right to tax any tax-free cash in the future. You could instead do a transfer to drawdown once per year, and draw from the pot over the course of the following year. You could even fully crystallise, tax the tax-free cash and invest that into ISAs perhaps, then draw down from those over time to complement your drawdown plan. As you can see, there are many ways to skin the proverbial cat, which is why it often makes sense to seek professional advice at retirement.
By the way, if you have any health or lifestyle factors, it may be worth getting personalised annuity illustrations as these factors usually mean you'll get paid more.
Finally, you ask why mainstream providers don't offer UFPLS. The two providers you mention are a bank and an insurance company, who often have legacy computer systems that are just not built for more modern pension options such as UFPLS. Often you can transfer to a different plan internally with these providers, into a plan which does offer the modern functionality. The more nimble, digital-first providers tend to be much more geared-up for these approaches. I also think it makes sense to consider consolidating into a single plan to make life much easier for you in retirement. Just be careful that the plans you're thinking of transferring don't have any extra benefits (often called safeguarded rights or benefits) that you might lose when you transfer.
Chartered Financial Planner
Pete is a Chartered and Certified Financial Planner and serves as Managing Director of Jacksons Wealth Management in Cornwall. He is also a prolific financial blogger and podcaster at MeaningfulMoney.tv with a desire to get decent financial information out to everyone who needs it.