Question
We currently have invested approximately £323,000 in a personal pension phased retirement plan. We are both 60 years old and are looking to transfer to a fixed interest type account e.g. Scottish Widows Bank (currently 5 years @ 4.7%) We understand that the FSA guarantees £85,000.00 each per institution so we assume our pension pot would be divided into 2 accounts per person.
Could you please advise if this is a good idea and the best way to achieve this or similar?Answer
If you're looking for a competitive fixed cash rate in your pension you'll need to consider a self invested personal pension (SIPP). Unfortunately, lower cost SIPPs tend to offer just one cash account paying almost zero percent interest.
To access the wider savings account market you'll need to use a higher end SIPP, but expect to pay hundreds of pounds a year in annual fees. You'll also be restricted to those accounts that permit trustee customers - which rules out most of the 'best buy' accounts featured on comparison websites and in newspaper tables.
Scottish Widows does offer a 5 year fixed rate pension account, but the rate (at the time of witting) is only 3.8%.
The best compromise is probably the James Hay i-SIPP, which offers a handful of fixed rate accounts that pay reasonable (although hardly earth-shattering) rates of interest. You can view a list of the available rates here. James Hay charges a £180 annual fee, but this is currently waived on pensions above £180,000.
Of course, before you consider transferring your existing pension arrangements check the available cash options and any penalties your provider would levy should you transfer away from them. There's no point moving to a better cash rate if penalties wipe out several year's worth of extra potential interest.
I'd also check whether your pension is 'phased' or whether you're taking 'income drawdown'. Phased means your pension is split into lots of identical policies, so you can gradually take benefits on each policy - i.e. take 25% tax-free cash and buy an annuity with the balance. Income drawdown means taking benefits (i.e. the 25% tax-free cash) on the whole pension but instead of buying an annuity leaving the money invested and drawing an income instead.
As for protection against a bank going bust, the Financial Services Compensation Scheme covers the first £85,000 per person per institution. A pension can only be held in one name, so unless you have a pension each you'd need to spread the £323,000 across 4 different banking intuitions (within the pension) to ensure you're covered. If the £323,000 refers to your combined pensions (held individually you can each hold money with the same banks, i.e. up to £170,000 per institution.
Hope this helps.
We currently have invested approximately £323,000 in a personal pension phased retirement plan. We are both 60 years old and are looking to transfer to a fixed interest type account e.g. Scottish Widows Bank (currently 5 years @ 4.7%) We understand that the FSA guarantees £85,000.00 each per institution so we assume our pension pot would be divided into 2 accounts per person.
Could you please advise if this is a good idea and the best way to achieve this or similar?Answer
If you're looking for a competitive fixed cash rate in your pension you'll need to consider a self invested personal pension (SIPP). Unfortunately, lower cost SIPPs tend to offer just one cash account paying almost zero percent interest.
To access the wider savings account market you'll need to use a higher end SIPP, but expect to pay hundreds of pounds a year in annual fees. You'll also be restricted to those accounts that permit trustee customers - which rules out most of the 'best buy' accounts featured on comparison websites and in newspaper tables.
Scottish Widows does offer a 5 year fixed rate pension account, but the rate (at the time of witting) is only 3.8%.
The best compromise is probably the James Hay i-SIPP, which offers a handful of fixed rate accounts that pay reasonable (although hardly earth-shattering) rates of interest. You can view a list of the available rates here. James Hay charges a £180 annual fee, but this is currently waived on pensions above £180,000.
Of course, before you consider transferring your existing pension arrangements check the available cash options and any penalties your provider would levy should you transfer away from them. There's no point moving to a better cash rate if penalties wipe out several year's worth of extra potential interest.
I'd also check whether your pension is 'phased' or whether you're taking 'income drawdown'. Phased means your pension is split into lots of identical policies, so you can gradually take benefits on each policy - i.e. take 25% tax-free cash and buy an annuity with the balance. Income drawdown means taking benefits (i.e. the 25% tax-free cash) on the whole pension but instead of buying an annuity leaving the money invested and drawing an income instead.
As for protection against a bank going bust, the Financial Services Compensation Scheme covers the first £85,000 per person per institution. A pension can only be held in one name, so unless you have a pension each you'd need to spread the £323,000 across 4 different banking intuitions (within the pension) to ensure you're covered. If the £323,000 refers to your combined pensions (held individually you can each hold money with the same banks, i.e. up to £170,000 per institution.
Hope this helps.
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Thanks for sharing excellent idea to competitive fixed cash rate in your pension. Income Drawdown Rates
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