# Pension matured €53,148 what to do?



## tester1 (8 Aug 2013)

Relatives pension has matured at age 60. 
Amount €53,148 minus €816.58 levy 
Guaranteed annuity rate is 9.82 % 

Person is self employed. 
Person wants 25k for business purposes. 

Pension forms states options are:
Tax free cash sum up to 25% and then with remainder you can 
1. Provide an annuity 
2. Invest in an AMRF/ARF
3. Take as a taxable cash 
4. Take as a trivial pension(taxable cash option for smaller pension funds)
5. Transfer to another provider

Person has no dependants. 
Person does not really have a clue what to do with remainder, wants to take approx 20 to 25 for business purposes 

Any suggestions greatly appreciated as we are clueless


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## Jim2007 (8 Aug 2013)

Well the starting point would be to figure out what his income is likely to be when he hits retirement age.  What other sources of income will he have - state pension, other private pensions, savings and so on and what is out goings likely to be.  Some back of a napkin calculations should give you an idea of where the money is required.

The second thing he needs to do is have a very clinical look at the application of 25K to business needs at 60, is the business going very well and likely to bring in additional revenues or is it a case of plugging a whole in a business that is already a dog!  I'd be very concerned about putting cash into a business that this stage of his life as if it goes wrong there really is not much time to turn it around.


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## mercman (8 Aug 2013)

Jim2007 said:


> I'd be very concerned about putting cash into a business that this stage of his life as if it goes wrong there really is not much time to turn it around.



Eh Jim, this is a bit rich. Older people that start or in fact keep businesses going, are often very successful. We haven't been advised what merits or qualification the person concerned holds, but in fairness to him and others they should be allowed and given a chance to move forward and to be allowed for their ideas to blossom.


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## Jim2007 (8 Aug 2013)

mercman said:


> Eh Jim, this is a bit rich. Older people that start or in fact keep businesses going, are often very successful. We haven't been advised what merits or qualification the person concerned holds, but in fairness to him and others they should be allowed and given a chance to move forward and to be allowed for their ideas to blossom.



I did not say he should not do it, I said he should be realistic in his assessment of whether it is a good idea or no.  But the reality is that most people go on pumping money into a business long after they should do and in the current economic climate that is a more likely to be the case than not.


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## mercman (8 Aug 2013)

That might be your opinion and it doesn't and shouldn't be classed as Gospel. What are the other options for older people. Invest in Bank shares and lose the lot. Or better still invest in Managed funds and watch a vast amount of the original capital or even profit been squandered in Management Fees.

Now that is a heap of choices.

Personally I'd like to choose dying old and doing something of my own choice rather than watching a Fat thirsty fund Manager earning a disgusting amount of money, but at the same time telling you it will be alright after your dead.


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## Marc (8 Aug 2013)

One of the key decisions here is the guaranteed annuity rate of 9.82%.

If they take any tax free cash they have to be absolutely certain that they will earn a return of at least 9.82%pa gross on this money for the whole of the rest of their life however long they live just to break even. Hummm, that's a tall order. The average annual return on the S&P 500 has been about that and that is the average annual return from a big slice of corporate America for the best part of a Century!!

I'd look at taking the full pension and no tax free cash and then seeing if you could borrow 25k as a business loan.

When the bank asks how you propose to repay the loan, I would point to the guaranteed income of €5219pa.


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## DerKaiser (9 Aug 2013)

Spot on Marc. Taking the full amount as the guaranteed pension effectively more than doubles the return instantly as you'd have to pay well over €100k to get that pension ordinarily. Best 'business opportunity' on offer by a mile!


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## Jim2007 (9 Aug 2013)

mercman said:


> That might be your opinion and it doesn't and shouldn't be classed as Gospel. What are the other options for older people. Invest in Bank shares and lose the lot. Or better still invest in Managed funds and watch a vast amount of the original capital or even profit been squandered in Management Fees.



Stop putting words into my month.  At no point did I suggest the OP consider any such option!  And had you taken the time to actually read the OP's post rather than going off on your usual anti-funds rant you might have noticed that the OP has a very good alternative!


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## Jim2007 (9 Aug 2013)

Marc said:


> One of the key decisions here is the guaranteed annuity rate of 9.82%.
> 
> If they take any tax free cash they have to be absolutely certain that they will earn a return of at least 9.82%pa gross on this money for the whole of the rest of their life however long they live just to break even. Hummm, that's a tall order. The average annual return on the S&P 500 has been about that and that is the average annual return from a big slice of corporate America for the best part of a Century!!



Marc, I agree that annuity is a very interesting option and in fact I'm of the opinion that equities will probably come in at more like say 7% pa in the next decade.



Marc said:


> I'd look at taking the full pension and no tax free cash and then seeing if you could borrow 25k as a business loan.
> 
> When the bank asks how you propose to repay the loan, I would point to the guaranteed income of €5219pa.



As I have already said, I think this idea needs very serious analysis before pumping any cash into it, if you will it is an investment in a single private equity.... I've seen far too many cases where owners continued to bump cash into a business long after it was viable - if you have the cash fine, but if not.....


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## Marc (9 Aug 2013)

Quote:
 	 	 		 			 				 					Originally Posted by *Marc* http://www.askaboutmoney.com/showthread.php?p=1344364#post1344364 
_I'd look at taking the full pension and no tax free cash and then seeing if you could borrow 25k as a business loan.

When the bank asks how you propose to repay the loan, I would point to the guaranteed income of €5219pa._

"As I have already said, I think this idea needs very serious  analysis before pumping any cash into it, if you will it is an  investment in a single private equity.... I've seen far too many cases  where owners continued to bump cash into a business long after it was  viable - if you have the cash fine, but if not....."

Jim,

If the OP goes to the bank to borrow the money they will get some "free" business consultancy advice.
If the bank advances them the money its because they have made a good business case for doing so.

If the bank does not advance them the money, one of the reasons will be that it isn't a good business proposition which would address your concerns surely?


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## Gervan (9 Aug 2013)

I can't get over the 





> guaranteed annuity rate of 9.82%


.
BOI offered me 2% as an annuity on my PRSA. Who, in this day, is paying 9.82%?


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## Jim2007 (9 Aug 2013)

Marc said:


> If the OP goes to the bank to borrow the money they will get some "free" business consultancy advice.
> If the bank advances them the money its because they have made a good business case for doing so.
> 
> If the bank does not advance them the money, one of the reasons will be that it isn't a good business proposition which would address your concerns surely?



First of all the bank's advisors are salesmen who are interested in selling a product and their most important criteria will be the ability to repay the loan not weather or not it is in the best interests of the client to do so.  This should be done by an accountant familiar with the business sector not a bank clerk.

Over the years I seen some wonderful (not) analysis done by the commercial lending departments at various banks, but the one that stands out would have to be the case where they added the loan figure to the accounting profit and in so doing arrived at a new profit figure and on this basis concluded that the company would be able to pay off the loan - I was on the liquidator's staff brought in to clean it up when it all went pear shaped.


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## Barney Magoo (9 Aug 2013)

Gervan said:


> I can't get over the .
> BOI offered me 2% as an annuity on my PRSA. Who, in this day, is paying 9.82%?



I thought it was just me. I'd love to know this too.


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## DerKaiser (9 Aug 2013)

Gervan said:


> I can't get over the .
> BOI offered me 2% as an annuity on my PRSA. Who, in this day, is paying 9.82%?


The Guaranteed annuity rate arises from the type of policy that was originally taken out. It was quite common up to the mid-eighties to be offered the option at retirement (whether that was immediate or 30 years away) to take a guaranteed annuity for life of up to 10% of the maturity proceeds. 

Not completely daft given the prevailing high interest rates when these policies were sold and absolute lack of any scenario testing by the providers (which is understandable when you are using a pen and paper!!).


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## JoeRoberts (9 Aug 2013)

DerKaiser said:


> The Guaranteed annuity rate arises from the type of policy that was originally taken out. It was quite common up to the mid-eighties to be offered the option at retirement (whether that was immediate or 30 years away) to take a guaranteed annuity for life of up to 10% of the maturity proceeds.
> 
> Not completely daft given the prevailing high interest rates when these policies were sold and absolute lack of any scenario testing by the providers (which is understandable when you are using a pen and paper!!).


 
WOW.  Learn something every day. Thought OP was mistaken about that rate. As matter of interest, would he have paid much extra for this guarantee ?


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## Marc (10 Aug 2013)

How much extra would someone have paid  is actually a very good question.

I recently reviewed an old contract that had been sold to a vet in the 1990s.

He had an allocation rate of 95% plus a 5% bid offer spread plus a policy fee. He also had "initial units" which applied to a slice of any new contributiions to the plan and these had an annual management fee of 4%pa the rest of the plan had an amc of 0.75%

So that was an initial charge of around 10% on all contributions plus an extortionate annual management charge. Not exactly good value.

The contract had a guaranteed annuity rate but calculating if it was even worth keeping the contract in order to avail if this is extremely complex.

This question was further complicated by the fact that he was invested in a weak with profits fund with a low equity backing ratio, a zero annual bonus rate and a market value adjustment.

Often a guaranteed annuity rate is only available on a single life basis with no spouses benefit and only at normal retirement date.

Historically, brokers have been paid a commission based on premium and term of a policy and it is therefore not unusual to see contracts written with a "normal" retirement age of 70 (in order to maximise their commission) this means that the guaranteed annuity on some contracts has strings attached.

Working your way around this contractual minefield is tricky enough even for an experienced adviser.


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## DerKaiser (10 Aug 2013)

There's a number of variations of this type of product. Some offer the 10% guarantee on the entire fund whilst others apply it to a guaranteed minimum maturity value, which in itself can also be valuable. Some offer the guarantee at any age from 60 to 75, whilst others specify retirement ages as high as 75 (making the option less valuable). Typically, the further back the policy was taken out, the more generous the options. This is because it was assumed that the options would ever be valuable. 

These options would have been offered with no serious effort made to value them, and therefore would probably not have been subject to any _additional_ policyholder charge.


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