Tony HazellJan 10 2018

My workplace pension will soon come of age

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I’ll be 59 early this year so pretty soon I will have to make some big decisions that will affect the rest of my life.

My occupational pension from the Daily Mail comes of age next spring – lucky me.

I won’t be taking it early but one of the big question I am asking is whether I should even take it in 2019. 

Then should I take a tax-free lump sum or stick with the monthly income?

Being a fairly organised sort of chap money-wise I have already contacted the pension scheme to check cash commutation rates and enhancement factors for leaving the pension untouched. 

Should I take a tax-free lump sum or stick with the monthly income?

The former was slightly disappointing, the latter rather more enticing.

I’ve got a number of issues to consider: tax, inflation, the lifetime allowance and mortality to name a few.

Most of my Daily Mail pension is linked to the retail prices index (RPI), which is rising annually by around 4 per cent – a third higher than the consumer prices index (CPI).

Consider the return I would need on investments to keep pace with that after charges.

But while I continue working – and I have no plans to retire – almost as much of my pension income will disappear into government coffers as makes its way into the Hazell household.

However, if I do not touch it I have to consider the effect on my lifetime allowance. I’m already prevented from paying more into my Sipp and further enhancement of my occupational pension may tip me into punishment tax territory.

But I suspect the question I will return to again and again over the next 12 months is that of the tax-free lump sum.

At one time the lump sum was a no-brainer – a bird in the hand and all that – but lower secure returns have changed that.

I don’t need the cash but on the other hand, even if I stopped working, I would still pay 40 per cent tax on the top chunk of my pension income, whereas a tax-free lump sum could be stacked into Isas and provide a tax-free income for my wife and me.

There is also the fact that once paid that tax-free money is mine so when I depart this mortal coil it could pass to the sprightly Mrs H (whose 93 and 94 year-old aunts could be seen dancing to Abba at her mum’s 90th birthday party a couple of months back).

I’m extremely fortunate to have these decisions to make. But the complexity and irrevocability of them illustrates how financial advice can be essential for anyone approaching pension age – even when, or perhaps especially when, they have a solid pension scheme and get a huge amount of enjoyment from building spreadsheets and pushing the buttons on a calculator.

 

Hoodwinking savers should not be a sport

If ever there were a warning of the dangers of sticking with cash then it comes in an analysis of cash Isas by the venerable Sylvia Morris.

She’s been doing an annual investigation into tax-free cash savings for Money Mail since the days when Tessas ruled the roost.

This year has produced some real shockers such as the Natwest cash Isa which paid just 18p interest on £1,000 of savings.

Halifax, TSB, Bank of Scotland, Lloyds, RBS and Santander all paid £1 or less interest on £1,000 on at least one account over the year.

The pattern remains unchanged over the past 20 years with banks consistently rewarding less than building societies.

That doesn’t mean building societies are blameless. Yorkshire paid just £2.50 on its Instant Access Isa Issue 3.

Yes, interest rates are low. But is it really necessary for banks to exploit savers to this extent?

Some may call the savers loyal, others may say they are lazy. But it should not be necessary to constantly monitor and move savings to earn a decent rate.

Market forces are supposed to stimulate competition. But as far as I can see the only competition is over who can get away with hoodwinking their savers for the longest.

Meanwhile, six of the biggest banks and building societies have cut their mortgage rates over the festive period.

That’s always nice to hear for those who are buying a home or remortgaging. Market forces are clearly working well in this aspect of the savings and loan world.

But from the point of view of savers I keep coming to the unfortunate conclusion that most would have been better off in the 1960s when rates were set by a building society cartel.

Tony Hazell writes for the Daily Mail’s Money Mail section