Pension Income options
A number of years ago, there was no choice of what to do with your accumulated pension fund. With the exception of Tax Free Cash (normally 25% of your fund), you had to buy an income for life known as a Compulsory Purchased Annuity. These rules have gradually been relaxed over the years giving the pension holder far more control over their fund. The latest developments were announced in the budget of 2014 allowing investors ‘unlimited access to their fund’ from age 55.
Whilst there have been attention-grabbing headlines about pensioners taking their entire fund to enjoy ‘the high life’ for a couple of years, we have found the reality rather different. Most clients seem to value the increased flexibility (after all, it is their money), but virtually everyone wants their fund to last and provide an income for life, albeit with more flexibility than an annuity. This is not too surprising as the pension has been funded, largely by the owner for many years.
Of course, the concept of an annuity is not dead, there are still millions of people for whom an annuity remains a viable option. The important issue is risk. It is primarily your attitude to risk & your capacity for loss that will lead our pension advisers to the most appropriate solution. This could be one or more of the following:
- Flexible Drawdown.
- Drawdown with Guarantees (often lifetime guarantees).
- Temporary Drawdown (with an option to purchase an annuity later)
- Enhanced Annuity (due to lifestyle or ill health).
- Guaranteed Annuity Rate (where this is offered with your current contract)
- Fixed-term Annuity (to provide a guaranteed income with future flexibility).
- Conventional Annuity (where you want to know exactly where you are).
- Phasing drawdown in a tax-efficient manner.
- Taking the fund and spending it all (it is unlikely that our advisers would recommend this!).
The recent changes, and the flexibility that they bring, are very welcome to the market but also bring choices which are, in many cases, one off decisions. It is vital that you have all the information to allow you to understand all options. If you are thinking about your pension planning and income options please call, email, or click the ‘contact’ button.