Immediatelt Vesting Pensions

A question about : Immediatelt Vesting Pensions

I am completely new to this - so I really hope I am asking this question in the right way!

I have heard about "Immediately Vesting Pensions" as a way for over 50's to put the maximum annual contribution into a stakeholder pension (by getting the government to top it up to Ј3,600), then immediately 'vesting' this pension - giving you a 25% tax free lump sum, and an annuity for the rest of your life.

I wonder if anyone out there has done this or has views on it as a strategy.

Many thanks.

Best answers:

• I believe Standard Life do it,if you look in their web-site.
• Thanks for the info. Terry - I'll have a look.
• Hi Anne, yes I have done one of there for my wife. I think it's a good idea, because althought you have to leave a substantial amount in the pension to cover your payments, you do get the 25% tax free lump sum immediately. My wife has has this going for about three years now and the fixed rate interest it pays every year works out at about 12% which is pretty good. When I took it out there was a loophole stating that if she died, the payments would revert to me, but that avenue has now been cancelled. Once you die, your money's gone. So you have to make sure that you live long enough to make it pay. ;D Take professional advice first but I reckon it's a good deal.
• You may get a better deal going through a discount broker, than buying direct. Mr klondyke used Hargreaves Lansdowne for a Standard Life special deal, though there may be better deals now from other brokers.
• Virtually all pension providers do this but the main aim of these products is to take the proceeds for retirement annuity contracts with lower tax free lump sum benefits or combining multiple pension funds into one and provide a greater annuity, similar to open market option.
  Although you can put cash into one and vest it immediatly, it would be a strange thing to do at this time. You may gain 22% tax relief but you will only get 25% back as a tax free lump sum and the income is taxable. It would take a good number of years to see your income match what you contributed.
  HOWEVER, paying into a stakeholder pension without immediatly vesting it could make a good investement for retired people. The tax relief of 22% is desirable and if you can hold on to age 75, then you could well get your money back in the tax free lump and have an income for the rest of your life from age 75 (based on age 75 annuity rates). If you were to die, the whole value (including the tax relief) would be paid out.
• Anne,
  I have done this for some years now, with a Standard Life pension through HL. How good value it is depends on your age and tax position. The older you are, the better rate of return you get. It also depends on your tax position. If you are a higher rate tax payer, you get back 40% of your initial premium in tax relief and a 25% lump sum payment tax free. Even though the pension is then taxed at 40%, the return can still be good. If you are a basic rate tax payer, you get a 20% tax rebate and a 25% tax free lump sum, though your pension is taxed accordingly.
  One joy is that the first pension payment is made immediately, on top of the lump sum.
  It may be that annuity rates will improve a little over the next year or two. You may like to contact HL for more details to help you work out whether it will be a good deal for you.
  Regards,
  Mike
• I'm not sure if there was a special deal but I do know that they advertised it a lot. !
  I just popped onto Standard Lifes website and got a quote for immediate vesting pension. !
  For a 65 year old man, Ј5000 contributed is grossed up to Ј6410. !Ј1602 tax free is returned with an annual income of Ј320.52. ! ! So, if you assume that the amount !of Ј3398 was the total commitment, the income rate of the annuity is 9.4% before tax. !(this assumes single life with a 5 year guarantee on a level basis). !That sounds very nice.
  That is exactly the same rate HL were advertising back in January 2003 (thanks to google for storing information that old).
  Now, lets assume you invested into a stakeholder but not immediatly vesting but leave it until you are 65. ! Lets ignore any growth that it would make and assume that the fund is worth exactly the same as was paid in. !Using the open market option available, Legal and General could offer 10.09%.
  So, things to note by this. !Both of these were done using age 65. ! Immediate commencement at age 65 may be appropriate if you require an income now. ! However, if you dont need an income now (eg, you are aged 55 and still working), you would be better leaving it. ! Also, by leaving it you would have investment growth. !Therefore when you come to vest, the fund value would be higher. !Your tax free lump sum would be higher too. ! Also, if you paid in every year, you fund value would go up, you would benefit from lower charges and when it comes to vest the pension, the higher the fund value, the higher the annuity rate as many providers have tiered rates. ! If you are a smoker or have impaired health you could get a couple of percent more. Annuity rates are based on age so the older you are the better the rate is.
  Its easy to be sucked in by the first rate. !However, the second option is even better.
• Was further back than 2003 and I think it worked out to nearer 12%, which if you recall interest rates at the time, was excellent. Also the idea of discount brokers is that they split commission with customer, so, yes, SL will quote the same and give you nowt back.
  Like I said, though, horses for courses; not recommending it for everyone, particularly as the rates aren't as good now. Was merely responding to the original question as to whether anyone had heard of Immediately Vesting Pensions or dealt with them. The main point is that the packages by that title are just that - ie for immediate vestment - not proper stakeholders, though rules don't permit having a stakeholder as well.
  As Hansi has reiterated, it depends entirely on your age and tax position (and current rates) whether it's worth doing. !You are, in effect saying the same, but it feels a bit like being smacked on the wrist.
  People interested in proper stakeholders or pensions should avert their eyes from this thread, but I do feel it is wrong to suggest HL are 'poorly advising' people who decide to take them up. They are mainly execution only but their information is a lot clearer than many companies. (For that reason we don't take up many of their offers ;D)
  PS mr klondyke is 70, but doesn't want everyone to know that - but I suspect he's not alone amongst people of that age in holding out on taking annuity on main pension until he has to at 75 (which, with luck may change). If he snuffs it before 75, kids will get the lump sum which is in trust - if he has to take it, there's more IHT headaches to consider. (Yes, I know, another thread/story)
  So a little smidgeon of extra income from an IVP, is not such a wicked thing, n'est ce pas?
• If it suits you (or Mr K in this case), that fine. I dont know enough about you to say any different. However, the thread was beginning to take a steer towards making IVP look very attractive to people who wouldnt be aware of the alternatives. Indeed, there have been references in other threads from people thinking these suited them when clearly they didnt. Many people on these boards do not take advice and will read the thread and act upon it thinking they are doing the right thing. In reality IVP is a minority use product to cover a niche need.
  If HL are (were) offering these on execution only. Therefore there cannot be any bad/good advice issues as no advice is given. Thats why they discount things as they are not responsible for the suitability of the product. There is no cost for advice.
  If it had been a mainstream product, we wouldnt be having this chat. I'm just posting to put a few warnings on the record for others that browse this thread on here or on google.
• Yes, I take your point that showing your extensive knowledge together with your footnote could be useful
  And throughout the thread, even those of us who have done it have been reiterating 'take advice', 'not necessarily for you' etc, etc.
  I don't usually get stroppy in this forum but I get irritated (sorry ;D) when I see 'experts' assuming that amateurs are incapable of reading, trashing what is being said and accusing other companies of bad advice - when, as you have admitted, you don't know the individual circumstances.
  Fine to make the generalisations you have made but not to libel other companies without justification. (I have no connection with HL other than as an occasional client.)
  Quote:
• I reckon these IVPs are a scam.If you die you lose the capital invested,your spouse or heirs get nothing.I f you survive,it takes years before you make a net profit,especially after you take inflation and tax into account
• Unfortunately the only guarantee you get is that if you die the annuity ceases and the insurance company collects the balance.