Whether you are thinking that retirement planning is still a little way off or you want to turn your pension into an income now, here are a few quick tips to help you get best result possible from the money you have managed to put aside for later in life.
1. Remember stock markets fall as well as rise
2010 has for the most part been a positive year for investments, however significant corrections have a habit of occurring at the most inconvenient of times. In the months and years leading up to your retirement think about where you are invested; should you move from equities into more secure assets to protect the pension money you have built up? How should you protect your funds against possible falls in stock market values?
2. Think about making additional contributions
They say the first pension contribution you ever make works the hardest; after all, it is invested for the longest period of time. However, contributions made at the end of your working life can also be worthwhile. Up to certain limits will attract tax relief making your pension contribution instantly 20% or 40% greater – this can be a great way to top up your retirement income and could really make your pension contributions work that little bit harder.
3. Consider all the options
The days of simply buying an Annuity from the same company you held your pension with are long gone. A whole myriad of options are now available to you.
There are at least six types of Annuity (Lifetime Annuity, Enhanced Annuity, Unit Linked Annuity, With Profit Annuity, Fixed Term Annuity, Purchased Life Annuity) and that’s even before you have started to consider Income Drawdown or Phased Retirement. Each option has its pros and cons; not every option will be right for you, but they should all be considered carefully before you make your final decision.
4. Open Market Option
So, you’ve considered your options carefully and decided an Annuity is the right choice for you, now what? The answer is easy; shop about for the best Annuity.
Every pension has something called an ‘Open Market Option’ or OMO; simply put it means you can take your pension to whoever will provide you with the best Annuity. It sounds simple but you would be amazed by how few people fail to shop about and just accept the Annuity offered by their current pension provider.
Once you buy a Lifetime Annuity it can never be changed. You will be stuck with a lower income for the rest of your life if you make the wrong decision now so take your time and look at all the Annuity providers before you make that decision. You need to compare the best Annuity rates on the market and work out which is best for you before you commit to any Annuity provider.
5. Find out if you qualify for an enhancement
Many people qualify for a higher income due to their health or a lifestyle issue, for example their smoking or drinking habits.
Always check whether you qualify; you might be pleasantly surprised and you could receive a higher income as a result of a health issue that you thought was insignificant. Remember, you can never change a Lifetime Annuity so it pays to check if you can get an enhancement.
Negotiating is not a terribly British thing to do, but getting a higher Annuity results in a better income for you year after year. Negotiate with the Annuity provider, or get your IFA (Independent Financial Advisor) to do it for you. For funds above £50,000 (especially when looking at Enhanced Annuities) most of the well known Annuity providers will increase the Annuity rate that they offer to win the business – even below this level some providers will still increase the rate offered.
You don’t know how negotiable your Annuity rates are unless you ask! These are just six things you can do to increase your retirement income but there are more – watch this space for future hints and tips that really can help improve your income when it comes to retirement planning.