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Teachers were underpaid for years, and the pension factored into the decision to do the job. They did the job, so they should get what they were told they'd get.
BTW, Drew and I are both in our late 20s, so we aren't baby boomers defending other baby boomers...
I will have a nice amount tucked away in a private pension (Every time I leave a company pension Inhave my money transferred to the private one).
So let say I hit 68 with $1m in a pension pot and I buy an annuity and then die on my 69th birthday.
Can my kids inherit what's left? Or is that how pension companies make their money?
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Or your wife could get a widows pension (or whatever the politically correct term is).
Oh wait, no I'm not! Public service pensions are now absolute balls. Final salary went ages ago, I'll be working 'til I die.
if you take an annuity for just yourself, you'd have got your 25% tax free into your estate, but the rest would be lost, Annuity looks a bit crap for most people at the minute. Draw down is better
https://www.pensionwise.gov.uk/when-you-die
Don't buy an annuity!
You can take up to 25% of your pension "pot" as a TAX-FREE lump sum.
You can take the rest of it and EITHER buy an annuity OR put it onto a draw-down plan. From that you draw down as much as you need, when you need it, but you pay tax on what you draw down, at your marginal rate.
The draw-down plan is usually a managed fund, which will/should grow as per the fund manager's skill. Whatever is left in the draw-down plan when you die is part of your estate, and is therefore inherited by the beneficiaries under your will. (You do have a will, don't you?). If it's a sufficiently large sum it may attract inheritance tax, as @ToneControl pointed out above.
If you buy an annuity instead of a draw-down plan, what happens when you die depends on the terms of the annuity. Some of them will continue to pay a reduced amount to your surviving partner until that person dies, then they keep whatever is left. Others don't, they just take whatever is left in the pot when you die.
The one good thing about an annuity is that it will give you a guaranteed (and possibly index-linked) income for life, whereas the draw-down pot could be exhausted before you die.
How long do you plan to stay alive after you retire?
There is a 3rd option, UFPLS:
http://adviser.royallondon.com/technical-central/pensions/benefit-options/ufpls-explained/
I would not recommend this for everyone
Basically : if you have not already started to take from your pot, you can elect to take UFPLS
With this, you basically take cash out. Each withdrawal is 25% tax free (like the lumpsum you normally get), and the rest is taxed as income, so if you took all of a large fund out, 75% of the amount about £150k would be taxed at 45%
I'd say this is good for people who are:
- holding a smaller pot that is pointless to stretch over 20 years: £70k now could buy a BTL investment , or a holiday home, or help move house, etc
- terminally ill
- people with very firm ideas about how better to invest it (e.g. BTL, businesses, world cruises, wine, women, song)
- those who want to give money to their kids now
for anyone else reading, there are other little-known constraints and options:you now cannot have over £1m in your pension pot without paying extra tax. This is a massive, recent change.
Imagine you were 40, and had saved £350k: growth might take it over £1m before you retire, and the govt reduced the limit, so don't assume it will go up with inflation.
For people on £80k plus with a final salary pension, this may well affect you: they multiply your pension by 20 or 25, if it's over £1m, you get hammered for extra tax
https://www.gov.uk/tax-on-your-private-pension/lifetime-allowance
this also affects being able to do UFPLS
If you plan to live outside the UK for a while, or retire abroad, you need to read about QROPS:
https://en.wikipedia.org/wiki/Qualifying_Recognised_Overseas_Pension_Scheme
"QROPS are increasingly popular with British expats due to currency and investment flexibility, the tax advantages they offer when drawing pension benefits and their ability to be transferred to beneficiaries of choice in the event of death. Pension funds left in the UK are taxed on income at up to 45% and taxed on death after 75 years old at up to 45%. Transferring a UK pension fund into a QROPS can reduce taxation and avoid UK taxation as long as the pensioner remains tax resident outside the UK."
Also, AFAIK the £1m limit does not apply once the money is offshore
read this:
http://www.hansard.com/~/media/Files/H/Hansard-V2/documents/qrops-lifetime-allowance-planning.pdf
having said all that, I think the companies running QROPS are not as reliable as the onshore UK ones, and charges will be higher
I think you can just take the whole amount out at the tax level of where you are living:
https://harrisonbrook.co.uk/qrops-transfer-out-switch-back-service/
this would be how I'd think you'd prepare for a return to the UK
you do have to resident outside the UK for 5 years before getting the pension:
http://www.pensionsforexpats.co.uk/budget-2014-new-2015-hmrc-tax-rules/
It is massively discriminatory against private sector workers.
I spent 5 years working for the NHS. I just those 5 years, my pension entitlement is better than the projected pension I will receive from a defined contribution private sector pension that I will have been paying into for 25 years.
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55% tax on proceeds above that
if your fund is worth £1.25m, you pay 55% tax on 20% of your pension
if your fund grows after retirement, it gets worse too
If you take 20% out, then it grows to £1m, you pay tax as if it was £1.25m, since you already took 20% out
now if you die and you have kids, your spouse only gets some of your estate, not all of it
Now, in England and Wales:
The husband, wife or civil partner keeps all the assets (including property), up to £250,000, and all the personal possessions, whatever their value.
The remainder of the estate will be shared as follows:
If a son or daughter (or other child where the deceased had a parental role) has already died, their children will inherit in their place.
Do others countries have similar policies?
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