I have received letters from several of my insurers reminding me that my old personal pensions are maturing on my 60th birthday. As you know, I intend to carry on working for a short while. Can I ignore these letters as the last thing I require today is more income on which I will have to pay higher-rate tax?
In normal circumstances, you would be right not to start taking benefits from your personal pensions. However, I would suggest that we do not merely ignore these letters but, instead, contact the companies with your instructions.
By drawing your pension benefits today, you will be paying hig her-rate tax on the inc ome and locking into an annuity rate for a younger age.
On the basis that income is not a problem to you at the moment and you do not wish to utilise the new drawdown
facility, I would always generally suggest that monies are left within the tax-efficient vehicle of the pension fund.
Unfortunately, however, it is not such a simple decision. You need to be aware that the general worldwide trend is for interest rates to fall, which could mean that annuity rates will worsen.
In general terms, particularly as you are not sure when you would like to retire, I would be suggesting that the monies are left where they are. However, we must very urgently look at all your policies in greater detail.
I am sure you will be aware of the problems that have beset Equitable Life. The background to the situation is that some of its old pensions contained within the policy not only a guaranteed fund at retirement but a guaranteed conversion factor or annuity rate, which is used in converting the fund to income.
It is these guaranteed ann uity rates and Equitable's poor judgement in dealing with these liabilities that have res ulted in the company closing its books to new business.
You have told me that several of your older pensions are the self-employed retirement annuities that were the predecessor to the personal pension plan. It was not just Equitable Life that offered guarantees within these contracts – most leading insurers offered similar guarantees.
You have to be very careful in that some insurers may not be making you aware that your policy contains guaranteed annuity rates. It is to their advantage if you do not exercise the guarantees, which will cost them more money.
I have recently dealt with maturing Friends Provident and Royal & Sun Alliance policies and, in both cases, these companies very clearly identified the benefits, using the guaranteed annuity rates within their policy.
The guarantee can take several forms. In Equitable's case, it often provided a single-life guaranteed annuity rate at all ages, so there was no real problem as to the date when you retired. However, other companies only applied the guaranteed rate at the maturity date and that is why we must act quickly.
The guaranteed annuity rate, particularly in a falling interest rate market, can bec ome very valuable. In the last case I handled, the guaranteed rate for a 65-year-old male was some 12 per cent better than an enhanced imp aired-life ann uity available on the open market.
If your policies do not contain guaranteed annuity rates, then I will probably be agreeing with you that we take no action other than to inform the insurance companies that you do not wish to take benefits at this stage.
But if they do contain guaranteed annuity rates, we will have to look at the time these annuity rates apply and whe ther the particular annuity in question suits you.
It might well be that, if the rate only applies on your 60th birthday, that I suggest that you take benefits from that particular policy. It is allowable for you to take benefits from one policy and not others.
What we need to do urg ently is clearly identify whe ther any of your policies contain guaranteed rates and, if so, when they apply. If they only apply on your impeding maturity date, then we need to take this into account before making any decisions.