UPDATE - Issue 36 - Spring 2009
Credit crunch thoughts
The credit crunch has been pretty bad news for pensioners and all who are living off their life time savings. But all is not bad news as I shall explain.
I am 74 years old. I draw down income from a Self Invested Personal Pension (SIPP). I was anticipating, like everyone else, that I would have to use my pension savings to buy an annuity by age 75. I was not expecting that my pension ‘pot’ would ever form part of the estate, which my children might inherit.
My pension savings have declined significantly in value as a consequence of the ‘credit crunch’. Do I really have to buy an annuity in a few months time and guarantee a reduced income for the rest of my life?
No. There is now another option, an Alternatively Secured Pension (ASP).
An ASP is a form of income drawdown. Instead of buying an annuity at age 75, an individual can continue to invest their pension savings and draw an income from their fund within laid down limits. This I now plan to do.
When I die, unless I time it very cleverly, there is likely to be a residual fund left over. This can a) provide any dependents with a pension or b) if there are no dependents, may be paid to a charity I nominate or c) if there are no dependents, it may become part of my estate and ‘willed’ wherever I wish. This option would attract a tax charge of up to 70% plus a further possible 40% Inheritance Tax. (A net tax rate of 82% - not very attractive!)
You may be pleased that I am going for option (b) and including Prostate UK amongst my nominated charities.
Hoping that it is many years before you see any of the money, I remain, etc.
A Prostate UK supporter