When the time comes to prepare for retirement, deciding how you want to draw an income from your pension is one of the most important decisions you’ll make.
A 2014 study by the Financial Conduct Authority (FCA) concluded that around 80% of retirees lost out on £1,000s in income by failing to explore the market before making a decision.
Traditionally most people retiring with personal pensions handed over their pensions to purchase an annuity, which paid out a guaranteed income for life, but meant that the pension fund they had accumulated throughout their working years was lost. These days there are a wide range of options for retirees including taking a flexible income via income drawdown.
The decision you make will depend on a variety of factors, including the size of your pension fund, your personal priorities and the level of risk you’re willing to take.
Flexi-Access Income Drawdown
Income drawdown allows you to draw an income directly from your pension savings instead of buying an annuity, leaving the rest of your pension pot invested in the stock market.
More retirees are choosing income drawdown these days as it offers a greater level of control over your finances. However, the investment element means you risk the value of your pension fund decreasing in difficult economic times.
Drawdown customers are strongly advised to work with an independent financial adviser to ensure their pension funds are invested wisely.
Uncrystallised Funds Pension Lump Sum (UFPLS)
This gives you the ability draw all of your pension as one lump sum. 25% of the lump will be tax-free, the remainder will be taxed. You can take all of your fund in one go, take capital lump sums as and when you need them, or structure your UFPLS so that you receive a tax-efficient income from it.
An annuity is essentially an insurance product that provides an agreed monthly or annual income in exchange for your pension fund. Annuities are generally seen as a more secure and reliable choice, although they are often non-transferable, meaning they automatically stop when you die and you can’t change your mind after you’ve purchased one.
Annuity rates vary considerably across different providers and there are a wide range of different annuity products available such as fixed rate annuities, escalating annuities, joint life annuities and enhanced annuities.
You are not obligated to buy an annuity from your existing pension provider and financial experts strongly encourage retirees to shop around before making a commitment.
We are a long time retired…
…which is why planning for a comfortable retirement should be regarded as a priority. Our advisers can examine the best ways to ensure that the advice and products they recommend will produce the sort of returns that will meet your expectations and will not affect the quality of your lifestyle when you are no longer working.
We will clearly explain the options available at retirement.
As well as providing advice on purchasing annuities, we advise on alternative options such as Unsecured Pension (previously known as Income Drawdown), and the new form Uncrystallised Funds Pension Lump Sum.
Advice is individually tailored to each client’s specific needs.