You’ve spent many years building up your pension fund, seen the value fall and rise, worried about whether it will be enough, even perhaps been through a miss selling scandal or two and you’ve now reached the stage where you want to retire, reduce your hours or even sell your business.
Simply put, it’s now time to start taking some money out of your pension.
The two most popular ways of taking an income from your pension is by using an Annuity or an Income Drawdown plan.
Our team of Independent Financial Advisers (IFAs) are experienced at providing retirement advice so we thought we would take a look which option suits which type of person.
Annuity
An Annuity could well be suitable for you if:
- You do not want to take any investment risk and want a guaranteed income for the rest of your life
- You want to make provision for your spouse or partner so that income will continue to them if you die before they do
- You would like to link your income to inflation. All Annuity providers will allow you to build in index linking to your Annuity, which will help to maintain the buying power of your income over years to come. However, remember that linking the Annuity to inflation can be expensive and will generally result in a drop of between 40% – 50% of the starting income
- You have health or lifestyle issues which could mean you qualify for an Enhanced Annuity and therefore a larger income
- You are looking for a simple solution, which does not require ongoing advice
Income Drawdown
As an alternative to an Annuity, Income Drawdown could be suitable for you if:
- Want flexibility in your level of income. The amount of income taken from an Income Drawdown plan can be changed within allowable limits, on a regular basis, to reflect changes in your circumstances
- You are prepared to accept a level of investment risk, which could mean your fund rises or falls in value, leading to rises or falls in your income
- You do not wish to lock yourself into current Annuity rates, perhaps because you think they will rise in the future or that your health will deteriorate to a level where an Enhanced Annuity could be available to you
- You require flexibility on your death in regard to how benefits are paid to your spouse, partner or other beneficiaries. On death Income Drawdown has both lump sum and income options available, which your beneficiaries can choose from at the time of your death
- You wish to continue to take advantage of self investment options via a SIPP (Self Invested Personal Pension) in retirement
- You satisfy the Minimum Income Requirement (MIR) of at least £20,000 from guaranteed sources meaning that Flexible Drawdown is available allowing you to take advantage of income levels above the usual cap
Other options
The list we have given above is far from definitive and is meant as a general guide to the types of people who consider Annuities and Income Drawdown.
There are of course other options available such as Investment Linked Annuities, Fixed Term Annuities and Phased Retirement all offer benefits which may be more suitable for your circumstances that either Income Drawdown or an Annuity.
Retirement options & advice
After spending years building up your pension fund it makes sense to carefully assess which retirement income option is right for you.
The days of simply buying an Annuity from your existing pension provider really are over; there are now at least 10 ways of taking an income from your pension.
You should start by considering your requirements. What’s important to you? What’s important to your dependents? Are you prepared to take any investment risk? Do you want guarantees?
All of these questions and more should be answered before you start to assess which of the retirement options is right for you.
Of course you could do this yourself, however we would always recommend that at such a crucial stage of your financial life advice is taken. If you do decide to take advice we have put together a helpful list of ‘9 questions to ask your Annuity adviser’ to make sure you get the best possible results from the adviser you choose to work with.
Our team of Independent Financial Advisers are highly experienced in this area and deal with this type of financial planning on a daily basis.
If you would like advice on whether an Annuity, Income Drawdown or one of the many other retirement income options is right for you then contact our team of advisers today on 0115 933 8433 or email info@investmentsense.co.uk
