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Speaker 1: I'm Merrin Somesetweb and with me Senior Border and Money
Speaker 1: Just Still author John's Depic.
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Speaker 1: this week we're not going to be talking about bitcoin, well,
Speaker 1: not on this bit of the pod anyway. We are
Speaker 1: answering another question about pensions, and I don't say another
Speaker 1: with exhaustion. I know it's very important and it's something
Speaker 1: that John and I get questions about all the time,
Speaker 1: and we want to make absolutely sure that when it
Speaker 1: comes to your time to dealing with your pension, you
Speaker 1: know exactly what to do. So this is the question
Speaker 1: that John and I get asked, possibly the most apart
Speaker 1: from should I buy bitcoin? But we're not touching that today.
Speaker 1: Here it is how does pension draw down actually work?
Speaker 1: You know, we hear a lot about pension draw down
Speaker 1: about how are we going to take care of our
Speaker 1: own money and our run up for a time, and
Speaker 1: that's our accumulation phase. Then we get to our decumulation phase.
Speaker 1: How on earth does that actually work? And how best
Speaker 1: can we manage it? Now? John and I of course
Speaker 1: are brilliant and all sorts of things, hugely knowledgeable, but
Speaker 1: on this we have had to pull in an expert,
Speaker 1: so here we have Stuart Trousse Stewart. Thank you so
Speaker 1: much for joining us. Stuart is the co host of Money, Money,
Speaker 1: Money on Switch Radio and author of the Bluffer's Guide
Speaker 1: to Economics. Although of course he had not a bluffer,
Speaker 1: he is an expert. He was previously a strategist at
Speaker 1: the European Bank for Reconstruction and Development. He's also e
Speaker 1: columnist for Bloomberg Opinions to do It. Welcome and thank you. Right, okay,
Speaker 1: so let's just get right in there. How does pension
Speaker 1: draw down actually work?
Speaker 3: The difficulty with pension draw down from an ordinary retire
Speaker 3: or prospective retires perspective is that basically all the risk
Speaker 3: is down to you, so you, you know, unlike having
Speaker 3: a final salary pension where the money just turns up
Speaker 3: in your out every month, so nice. You've kind of
Speaker 3: got to engineer how the money is withdrawn from your
Speaker 3: pot and ideally that you don't outlast your pot. That
Speaker 3: means you take on a lot of risks. So you
Speaker 3: take on the longevity risks simply that you last longer
Speaker 3: than your money does. The inflation risk. You've got to
Speaker 3: have a strategy for investing the money you don't need immediately.
Speaker 3: You know, the bottom line is you've got to decide
Speaker 3: on an appropriate level of draw down from your fund.
Speaker 3: So the way you can handle it is the classic
Speaker 3: thing is people some people take their twenty five percent
Speaker 3: of their pot tax free as a lumps arm to
Speaker 3: go and buy a yacht or a Lamborghini or holiday
Speaker 3: of a lifetime or more sort of more boringly, to
Speaker 3: sort of pay off mortgages than anything outstanding they've got
Speaker 3: prior to retirement, and then they put the rest of
Speaker 3: their pot into what's called draw down, and they decide
Speaker 3: on a sustainable rate of draw down, ideally with the
Speaker 3: help of a financial advisor. But a lot of people
Speaker 3: don't take that route. Some rules of thumb perhaps we
Speaker 3: can discuss later to as a guide of what's a
Speaker 3: sustainable rate. But there is one other strategy that combines
Speaker 3: the tax free cash and drawing down a regular income,
Speaker 3: because you can, instead of taking your twenty five percent
Speaker 3: tax free cash all in one go, you can take
Speaker 3: twenty five percent of each monthly draw down free of tax,
Speaker 3: and that allows you to take a much bigger income
Speaker 3: without running into sort of making yourself a forty percent
Speaker 3: tax payer and retierance stuff like that. And you know,
Speaker 3: obviously that's a big challenge in the way of the
Speaker 3: budget as well. You know, given the inheritance tax now
Speaker 3: applies to pensions, you want to be able to draw
Speaker 3: as much as you can from your pension if you've
Speaker 3: been fortunate enough to build up a big pot without
Speaker 3: paying forty forty five percent to withdraw it.
Speaker 1: Yeah, but the challenge, there's jud so so many places
Speaker 1: to go here. But let's star. Yeah, let's start with
Speaker 1: that inheritance tax point and whether you should take out
Speaker 1: the twenty five percent. It's not always twenty five percent
Speaker 1: any more, is it as capped? But that large tax
Speaker 1: free amount that you can take out immediately. Now, let's say,
Speaker 1: let's just say that you hit whatever it is you
Speaker 1: can start withdrawing from your pension. It's fifty five for
Speaker 1: some and then going up to fifty six, right, and
Speaker 1: then is it going to fifty seven like that? Yes,
Speaker 1: So it depends on which age you can take it.
Speaker 1: But you get to that age and you do not
Speaker 1: take out the twenty five percent, you decide to take
Speaker 1: twenty five percent of every income payment going forward as
Speaker 1: your tax free amount. If you get hit by a
Speaker 1: bus tomorrow, everything in your pension now becomes IHT liable,
Speaker 1: Whereas if you took the whole twenty five percent out
Speaker 1: at once and gave it to your children, then you
Speaker 1: would have avoided that bit of inheritance tax.
Speaker 3: Yeah, and I think you've you've just hit the nail
Speaker 3: on the head there actually, because if you simply take
Speaker 3: the twenty five percent tax free cash and leave it
Speaker 3: in your bank account, you know, economically, that doesn't change anything.
Speaker 3: But if you gift it, then yes, absolutely that's a
Speaker 3: game check. So you know, say you're talking about a
Speaker 3: million pound pot. You can take two hundred and fifty
Speaker 3: thousand pound out of that and gifted away, and your
Speaker 3: inheritance taxes is calculated on the remaining seven hundred and
Speaker 3: fifty thousand.
Speaker 1: You know, that is subject I just want to say
Speaker 1: quickly before I'm just saying that that is subject to
Speaker 1: the seven year uld. Did you get run over by
Speaker 1: a bus tomorrow, you're still subject to problem. Get away
Speaker 1: from buses, stay away.
Speaker 3: Yeah, no, no, yeah, you're absolutely right. That at least
Speaker 3: starts the process rolling. And you know, and to some extent,
Speaker 3: the tax free cash is is kind of more complicated
Speaker 3: as well, because that's not inheritable, do you know what
Speaker 3: I mean? A lot of tax allowances, especially between husband
Speaker 3: and wife, are inheritable, but your spouse or whoever you
Speaker 3: leave it to doesn't inherit your right to tax free cash.
Speaker 3: So that's what slightly changes the dynamic a bit, you know,
Speaker 3: And in some ways it's better to inherit a million
Speaker 3: pound in ices from somebody, although you lose the tax wrapper.
Speaker 3: You have to take that in cash unless you're a spouse,
Speaker 3: so you know, you could see you're already it gets
Speaker 3: really complicated because you've got a whole load of choices
Speaker 3: that most people just don't want to have. You know,
Speaker 3: the sort of pension freedoms ten years or so ago
Speaker 3: gave people a lot of freedom that they didn't really
Speaker 3: want to want to have.
Speaker 1: Oh that's sad, okay, right, Let's assume here we've decided
Speaker 1: we've decided not to take the twenty five percent up front.
Speaker 1: We've decided to leave it in the account, and we've
Speaker 1: decided that every month when we draw our income, twenty
Speaker 1: five percent of it will be the tax free part.
Speaker 1: Or I'm saying twenty five percent is shorthand by the way,
Speaker 1: we do know it's capped. We're just saying twenty five percent. Yes,
Speaker 1: the majority of people, it will remain twenty five percent.
Speaker 1: That sounds like admin. Hell, how do you do that?
Speaker 1: You simply say your provider do this for me? Or
Speaker 1: is there some kind of admin that you're required to
Speaker 1: do to make this happen?
Speaker 3: Yes, there is that been required to make that happen.
Speaker 3: But actually most pension providers will be able to set
Speaker 3: you up. So say, for example, you decide to take
Speaker 3: twenty five percent of each monthly payment free of tax,
Speaker 3: you can you can arrange for that to be paid
Speaker 3: regularly into your bank account with minimal interference. A problem
Speaker 3: comes when they have to decide what to sell from
Speaker 3: within your pension pot to provide you with a liquidity,
Speaker 3: so you can't completely get away from the problem. But
Speaker 3: most people can set it up so that they receive
Speaker 3: a regular amount into their bank account. The question is
Speaker 3: is whether that's too much now run out of money
Speaker 3: or too little and now pot will build up and
Speaker 3: up and up and now get hit with inheritance tax
Speaker 3: when they eventually die.
Speaker 1: But when you say they, you're referring to the provider.
Speaker 1: But let's say, for example, that you hold your SIP
Speaker 1: on a DIY platform, so maybe you all language landsown
Speaker 1: or I or something like that. How does it work.
Speaker 1: Then when you say they have to decide what to
Speaker 1: sell to create the liquidity and these circumstances, you have
Speaker 1: to do that yourself. So it's hard work.
Speaker 3: You're exactly right, and you know, I mean, this is
Speaker 3: a conversation I have with a lot of people, is
Speaker 3: that we may all, you know today, we may all
Speaker 3: feel on top of our powers, and you know, on
Speaker 3: top of our game and stuff like that, our appetite
Speaker 3: for complexity, you know, in our late seventies and eighties
Speaker 3: is going to be significantly diminished, even if we've got
Speaker 3: mental capacity. So you know, this is one of the
Speaker 3: problems with things like draw down. There's a lot of flexibility,
Speaker 3: a lot of freedoms to do stuff, but most people
Speaker 3: don't want those freedoms. So you can have it set
Speaker 3: up so you get the regular income. You can do
Speaker 3: the regular income even if you've taken all your tax
Speaker 3: free cash. It's just you can have a bigger income
Speaker 3: without paying a huge amount of tax. If you take
Speaker 3: a quarter of each monthly.
Speaker 1: Payment so it might make sense then, I mean in
Speaker 1: the accumulation phase obviously, you know, if you're diying in
Speaker 1: the accumulation is complicated. You've given eyels all the time,
Speaker 1: be careful of your investments, et cetera, but you don't
Speaker 1: have the same type of maths to do so. For
Speaker 1: most people, is it fair to say that it would
Speaker 1: make sense, if you've diyed through accumul perhaps to hand
Speaker 1: it over to a platform that will do the money
Speaker 1: management for you in the decumulation phase.
Speaker 3: Yeah, no, no, I think there's a case to be
Speaker 3: made for doing that. Another way people handle the complexity
Speaker 3: as well, is that the early years of retirement tend
Speaker 3: to be pretty expensive. In fact, spending in retirement tend
Speaker 3: to be a bit of a u shape. But you,
Speaker 3: I don't know, You still might have children on the
Speaker 3: balance sheet, and you might want to sort of buy
Speaker 3: yourself a little present for a lifetime working or something
Speaker 3: like that, or the holiday and what have it, whatever,
Speaker 3: whatever the cause, you spend quite a bit in the
Speaker 3: early years of retirement, and then you get to the
Speaker 3: stage where hopefully you're sort of still fairly fit, but
Speaker 3: your appetite for sort of trekking in the Himalayas or
Speaker 3: what have you, is not quite what it was when
Speaker 3: you were in your twenties, so you're spending goes down
Speaker 3: a bit. And then obviously the final years it's a
Speaker 3: bit of a lottery. You've got care and stuff like that.
Speaker 3: So what some people do is that they spend sort
Speaker 3: of in a more discretionary manner in the early part
Speaker 3: of retirement, and then when they start to get a
Speaker 3: clear idea of what their fixed expenses are, then some
Speaker 3: people buy an annuity to cover just those fixed expenses
Speaker 3: and then and you know, the rest of the pot
Speaker 3: is available to be drawn down if they need more
Speaker 3: money than that. But that's kind of a nice way
Speaker 3: giving yourself some certainty at a time when you're you're
Speaker 3: you're craving a lack of complexity in your life.
Speaker 1: Okay, that makes it. That makes a lot of sense.
Speaker 1: That's a really useful thought. The idea that your retirement,
Speaker 1: your retirement spending is is you shaped. So let's say,
Speaker 1: let's say, John, this is the last question I'm going
Speaker 1: to ask, and I'm handing over to you at the
Speaker 1: long list of questions I know you have about this.
Speaker 1: You don't, of course, you do, of course you. So
Speaker 1: let's talk about how we actually invest. So let's say
Speaker 1: that I am going to stay DIY at least maybe
Speaker 1: for the first ten years of my retirement. Maybe I'm
Speaker 1: only in my late thefties, and I'm pretty sure that
Speaker 1: I can do this my out for the next fifteen
Speaker 1: years or so. Do I just go out and buy
Speaker 1: a pile of equity income funds or equity income investment
Speaker 1: trusts or is that the wrong approach and I should
Speaker 1: just go straight into bonds and hold a pall of
Speaker 1: boring bonds forever. Not the bonds are always boring.
Speaker 3: There's so much to unpicking that, you know. It's a
Speaker 3: basic principle of investment. The amounts of risk you take
Speaker 3: is proportionate to your time horizon. So you know, if
Speaker 3: you're setting you know, if you're saving a lump some
Speaker 3: I don't know, to pay off for mortgage by a
Speaker 3: flat something like that in the next few months, you
Speaker 3: obviously don't want to take the risk of the market
Speaker 3: crashes and halves your capital, so you take zero risk
Speaker 3: your cash or short dated bonds. But as your time
Speaker 3: horizon lengthens, and especially once it gets past five years,
Speaker 3: which at least some of your pension pot will be
Speaker 3: designed to last for then it's appropriate to take more risk.
Speaker 3: And the question is how you take the risk with
Speaker 3: a pension Because you don't have to pay capital gains
Speaker 3: tax and stuff like that, you don't actually need to
Speaker 3: have income generating sets in that you can draw down
Speaker 3: on the capital gain. So you know, it's the old
Speaker 3: thing between being indifferent between an income and a capital gain.
Speaker 3: You know, if your wealth is risen by ten percent,
Speaker 3: it doesn't matter whether you've got ten percent of dividends
Speaker 3: or your the value of your assets gone up by
Speaker 3: ten percent. So to that extent, you don't necessarily have
Speaker 3: to restrict yourself to equity income funds on the one hand,
Speaker 3: And then you talked about bonds, and the natural thing
Speaker 3: is that as people get older, they de risk their portfolios.
Speaker 3: They have bigger holdings of bonds. But there's a massive
Speaker 3: difference between holding a bond, an individual bond, and holding
Speaker 3: a bond fund because the only way you get the
Speaker 3: good bits of bonds, you know, the fact that you
Speaker 3: know what you're going to get when they mature, and
Speaker 3: the regular income along the way is if you hold
Speaker 3: individual bonds to maturity if you buy a bond fund,
Speaker 3: you know, you're just as subject to the arbitrary movements
Speaker 3: and markets as an equity fund would be, you know,
Speaker 3: and people found that to their huge cost in say
Speaker 3: twenty twenty two, when inflation took off, interest rates took off,
Speaker 3: and bond funds got absolutely crucified. And so it really
Speaker 3: depends what you're going for. If you've still got an
Speaker 3: appetite for complexity, then you organize your bonds. You've got
Speaker 3: them running off at a regular period, creating a stream
Speaker 3: of coupon income and final redemption, so you can actually
Speaker 3: plan what's going on. You can't do the same with
Speaker 3: a bond fund. It's simply just another asset class that's
Speaker 3: subject to market movements.
Speaker 1: Okay, so going into bonds by yourself it's also very
Speaker 1: hard work.
Speaker 3: Yeah, No, it's very labor intensive. You're doing what a
Speaker 3: defined benefit pension fund manager would be doing, matching their
Speaker 3: assets and liabilities, and you having a nice ladder of
Speaker 3: bonds maturing at regular intervals, and you can have a
Speaker 3: spreadsheet or I'm sure there's more sort of exotic software,
Speaker 3: but from an individual investors' perspective, they can see where
Speaker 3: their incomes coming in each month, and they can engineer
Speaker 3: it so they get exactly what they want. And you know,
Speaker 3: they can even do fancy things by outside pension wrappers,
Speaker 3: by sort of buying low coupon bonds. So some of
Speaker 3: the return is in the form of capital gains. But
Speaker 3: do you know what I mean, you know, yeah, exactly,
Speaker 3: you're optimizing all the tools you've got at your disposal.
Speaker 3: Is it is mind blowing.
Speaker 1: So that there's a reason why people do this professionally, right.
Speaker 3: Yeah, oh, definitely, very much so, you know, but the
Speaker 3: issue between the difference between bonds and bond funds is
Speaker 3: a crucial one that you know, even a lot of
Speaker 3: financial advisors don't seem to grasp.
Speaker 2: And I think that's really interesting point that Manas kind
Speaker 2: of brought up. Is there difference between the accumulation and
Speaker 2: the decumulation fees. I mean, ultimately, accumulation can be quite
Speaker 2: easy if you really wanted to, then you can just
Speaker 2: stick your money monthly basis, save every month, stick and
Speaker 2: track your funds whatever. But you know, you start in
Speaker 2: your twenties, you get forty fifty years before you're retired,
Speaker 2: you can keep your portfolio being virtually the same kind
Speaker 2: of you know, between eighty and one hundred percent equities,
Speaker 2: probably for at least the first twenty years, probably for
Speaker 2: the first thirty if you want, and then you don't
Speaker 2: have to worry too much. But is this becoming very
Speaker 2: obvious from the conversation. The bit after that is actually
Speaker 2: really complicated because suddenly your time horizon completely narrows. You're
Speaker 2: suddenly trying to balance. It's not about saving as much
Speaker 2: as you possibly can. It's about trying to make sure
Speaker 2: that you use up as much of the port as
Speaker 2: you can before you die. Yeah, and you just don't
Speaker 2: know obviously, you don't know when you're going to die.
Speaker 2: You don't know what your rate of return is going
Speaker 2: to be on the stuff that's still in your portfolio.
Speaker 2: You only have a I mean, you barely know what
Speaker 2: your spending is going to be. And one thing I've
Speaker 2: noticed whenever I talk to the retired people is they
Speaker 2: are astonished by how much they spend, even though I mean, yeah,
Speaker 2: it's the U shaped thing, definitely, but it's also it's
Speaker 2: a bit like, you know, they're always complaining about how
Speaker 2: they don't have any time now that they've retired. And
Speaker 2: then also you know, they don't have any money either,
Speaker 2: or rather they spend more than they expect. I mean,
Speaker 2: so from that point of view, do you think there's
Speaker 2: a good case for even if you've been an independent investor,
Speaker 2: you're for your accumulation phase of opening an advisor, And
Speaker 2: if so, what other kinds of things you should look
Speaker 2: for in a wealth manager and maybe how much should
Speaker 2: you be expecting they pay for that? I know those
Speaker 2: are all those are both pretty tricky questions, but I mean,
Speaker 2: if you've got a rough view on your thinking there.
Speaker 3: You're exactly right, because you know, accumulation is completely different
Speaker 3: from decumulation, and there are all sorts of issues. You know,
Speaker 3: it's you've got pound cost averaging on the way in
Speaker 3: for accumulation that works in your favorite you know, very briefly,
Speaker 3: that's basically, the weaker the market is, the more your
Speaker 3: regular monthly contributions buy, the more units in funds. The
Speaker 3: mirror image of that is there when markets are really strong,
Speaker 3: you're buying fewer units, so on average, you're buying each
Speaker 3: unit at a lower price than you might otherwise have done.
Speaker 3: It's smooth things out and protects you against falls. And
Speaker 3: in fact, if you're really young as big stock market
Speaker 3: form might actually be a really good thing because you're
Speaker 3: going to put more in in future than you've done today.
Speaker 3: So that's the accumulation phage, and that's pound cost averaging.
Speaker 3: What we've just been talking about, what you've been asking about,
Speaker 3: is pound cost ravaging. And this is probably where you
Speaker 3: need the help because because basically, if the stock market,
Speaker 3: if the stock market falls sharply and you're just about
Speaker 3: to sort of you know, if you're say taking your
Speaker 3: annual income in one go, you know, just to sort
Speaker 3: of make the for the purpose of illustration, you're going
Speaker 3: to have to sell a lot more units in your
Speaker 3: pension fund to make however much you want to draw
Speaker 3: down from your fund. And that's where the professional advice
Speaker 3: can really help, because if you can take some of
Speaker 3: the pressure off your pension fund when stock markets are
Speaker 3: really weak, give them time to recover as they usually do,
Speaker 3: that will give you your fund a lot more resilience,
Speaker 3: and it's worth paying extra for that. The problem is
Speaker 3: is that basically, rather than simply giving you the advice
Speaker 3: setting you up with a sustainable plan and letting you
Speaker 3: get on with it, that financial advisors will want it
Speaker 3: to bring all your assets under management and charge you
Speaker 3: a fee appropriately, And that's a large part of the
Speaker 3: reason why, you know, people who haven't got enough assets
Speaker 3: don't interest financial advisors because two percent of nothing is
Speaker 3: still nothing, whereas people who've got very substantial assets, perhaps
Speaker 3: people who've used pensions of as wealth management in estate
Speaker 3: management tools, might have many millions in there, and two
Speaker 3: percent of that is a very substantial amount of mine,
Speaker 3: and probably considerably more than the advice they get is worth.
Speaker 3: So you do get caught in that situation. But if
Speaker 3: you derive quite a bit of consumer sort of joy,
Speaker 3: if you like, from having all this worry taken away
Speaker 3: from you, you know, it's difficult to put a price
Speaker 3: on that, especially if you're buying peace of mind by
Speaker 3: getting advice. You can also get free advice as well,
Speaker 3: you know, pension wise, there are you know that the
Speaker 3: take up of these services has been extremely disappointing from
Speaker 3: a government's perspective, and financial advisors are always quick to
Speaker 3: point out that the take up is quite low. But
Speaker 3: you know, you can have a free conversation about precisely
Speaker 3: these sort of issues with somebody who knows how everything works,
Speaker 3: and conhaps sort of sanity check what your plans are
Speaker 3: and make a few useful comments on that.
Speaker 2: The all the other thing I was going to ask
Speaker 2: about boys annuities and their rule and all this, and
Speaker 2: know that it can have briefly meant. But again, one
Speaker 2: of the reasons the pensions freedom came along in the
Speaker 2: first place is because people got annoyed about having to
Speaker 2: annuitize and obviously buy an annuity portshole down, et cetera,
Speaker 2: et cetera.
Speaker 1: And then they were so partly irritated not just by
Speaker 1: the annuities themselves, but by being ripped off by the
Speaker 1: annuity providers because they were obliged to buy annuity. So
Speaker 1: it was partly the system and partly the fact because
Speaker 1: they were obliged to do it and they almost always
Speaker 1: brought them from the same the provider that they'd been previously,
Speaker 1: they were almost inevitably ripped off. So that was a
Speaker 1: big part of the problem. Sorry to interrupt, No, I
Speaker 1: didn't you get that?
Speaker 2: Yeah, yeah, because I remember we always used to write
Speaker 2: a shop.
Speaker 1: Up around, shop around, but nobody did. They got these
Speaker 1: letters and and you know it said take care. They
Speaker 1: ticked there and that was that maddening.
Speaker 2: But yeah, no, I mean, obviously, then annuities became extremely poor,
Speaker 2: of how you because of the low interest rate environment,
Speaker 2: but that has changed now, so in terms of the
Speaker 2: role of an annuity and checking that you're getting a
Speaker 2: good value innuity, if you get any thoughts or kind
Speaker 2: of rules of thumb for going about doing.
Speaker 3: That, right, Yeah, No, no, definitely, because I mean, obviously,
Speaker 3: you know, annuities tend not to, even in good times,
Speaker 3: tend not to pass on a huge amount because you know,
Speaker 3: basically you lose your entire pension pot and you get
Speaker 3: an income that's only slightly better than you might do
Speaker 3: from fixed income products as well. But you know, setting
Speaker 3: that aside, the change is inheritance in inheritance tax will
Speaker 3: definitely cause more people to err towards inuities now, because
Speaker 3: you know, if you're going to lose forty percent of
Speaker 3: your pot, you might as well sort of get yourself
Speaker 3: a guaranteed income and get away from a lot of
Speaker 3: the problems. We've just been talking about about complexity in
Speaker 3: older age, and you can get around that to an extent.
Speaker 3: You know, we talked about hybrid anuities where you arenuitized
Speaker 3: enough of your pot to guarantee your fixed expenditure and
Speaker 3: stuff like that. There are also medical conditions as well.
Speaker 3: You know, this is shopping around not just to get
Speaker 3: a better standard rate, but a lot of people will
Speaker 3: be able to get if they've got slightly high blood pressure,
Speaker 3: you know, they're taking medication for that that. You know,
Speaker 3: it doesn't have to be sort of a death store
Speaker 3: or anything like that. They'll be able to get a
Speaker 3: better annuity rate for that as well. So it's well
Speaker 3: worth shopping around there. And then going forward, you know,
Speaker 3: the whole change in the environment whereby pensions aren't wealth
Speaker 3: planning instruments will change the sort of the way in
Speaker 3: which people look at drawing incomes down from pensions, and
Speaker 3: that's a huge new area where where work has been
Speaker 3: done but little progress may whereas now this is heavily
Speaker 3: incentivized progress because for example, you know, if you lose
Speaker 3: a big part of your pot on death, there is
Speaker 3: an argument for collectivizing death risk a little bit like
Speaker 3: life insurance in reverse. So that if for sort of
Speaker 3: an actuary or something like that, or you know, a
Speaker 3: pensions administrator looked at the whole fund for say particular yes,
Speaker 3: say for Bloomberg for example, and decide right in retirement.
Speaker 3: We can pay this rate largely because some people will
Speaker 3: die early, some people will dilate, and you collectivize that
Speaker 3: risk especially Yes, yeah, no, I mean you know, I mean,
Speaker 3: obviously there are details to to sort out there, and
Speaker 3: you'd want to improve confidence in pensions and administration, which
Speaker 3: is pretty low at the moment. But I would imagine
Speaker 3: that that is a way things are going to go,
Speaker 3: because it's you know, people want will want better incomes
Speaker 3: that than are available from annuities. Yet they are attracted
Speaker 3: to the certainty and sort of you know, maybe there's
Speaker 3: a trade off between certainty and sort of higher incomes there.
Speaker 1: All right, I think we better, we better come to
Speaker 1: a closer everyone might as you get bored of pensions,
Speaker 1: which occasionally does happen. I had one, not for us,
Speaker 1: not for us, But I gathered there are other people
Speaker 1: who lose interest minutes. Final question. There are we gather,
Speaker 1: or I gather from reading the newspapers at the weekend,
Speaker 1: quite a lot of people who took their twenty five
Speaker 1: percent or not twenty five percent. But when you know
Speaker 1: what you can get a short hand for out of
Speaker 1: their pension in advance of the budget. Yes, and now
Speaker 1: regret it and would like to put it back, and
Speaker 1: several of the newspaper Q and A Money things I
Speaker 1: read over the weekend suggested that that is possible because
Speaker 1: of the thirty day cooling off period. If you only
Speaker 1: took it out just before the budget, you can go, actually,
Speaker 1: I've changed my mind and you can put it back.
Speaker 1: Is that correct?
Speaker 3: That's absolutely correct. Basically, whether you should regret in inverted
Speaker 3: commas taking your tax free cash largely depends on what
Speaker 3: you do with it. So if it's just sitting in
Speaker 3: your bank account, you've lost the tax wrapper for it,
Speaker 3: the you know, the ability for those funds to grow
Speaker 3: capital gains, so you'd probably be better off putting it
Speaker 3: back using the cooling off period. But again, you know,
Speaker 3: if you're sort of trying to do this as part
Speaker 3: of your estate planning, drawing the tax free cash and
Speaker 3: gifting it and taking your seven year rule chances, it's
Speaker 3: probably still the main strategy. So it depends what your
Speaker 3: motivation for taking the money out in the first place was,
Speaker 3: what the best strategy is for now. You know, if
Speaker 3: you were just taking it out and parking it in
Speaker 3: a bank account, you might as well put it.
Speaker 1: Back and of course, the other thing say is that
Speaker 1: you know, just because you didn't change the rules in
Speaker 1: that budget doesn't mean she isn't going to change the rules.
Speaker 3: Yeah, no, no, I think sort of going forward, it
Speaker 3: is perhaps a little less likely because she's kind of
Speaker 3: acknowledged the tax free cash thing as a thing. But
Speaker 3: you're absolutely right, you know. I mean, basically, if you
Speaker 3: take forty billion out of the economy, growth isn't going
Speaker 3: to exceed expectations. Wandering out of my lane here, that's
Speaker 3: all right.
Speaker 1: Just in case there is anybody out there who did
Speaker 1: take the money out and is thinking about putting it back,
Speaker 1: do be very very careful because you don't want to
Speaker 1: full foul of any of the rules. We're not allowed
Speaker 1: to put much in after you've taken some out, because
Speaker 1: you could end up with a really nasty tax charge
Speaker 1: if you get that wrong. So if you're going to
Speaker 1: do it, take advice, make sure you get it right,
Speaker 1: and I think stats it. Unless anyone has anything else
Speaker 1: super interesting today about pensions, Nope, we good guests.
Speaker 2: Right.
Speaker 1: Thanks for listening to this week's Maren Talk to Your Money.
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Speaker 3: This point, Yes, it's a pension Man UK.
Speaker 1: Okay, follow at pension Man UK as well I do
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